Auditing Lecture Slides - ACC 410

Presented by : Kudakwashe Ndlovu (CA)Z 1
Module outline
Pre –engagement activities
Planning for an audit
Obtain audit evidence
Concluding an audit and reporting
Other engagements
Corporate governance (King 111)
The Companies Act
PAAB Act
Admin issues
 COURSE ASSESSMENT
 Course work (Written) 30%
 Examination 70%
 Total 100%
At the end of the semester you are going to write a 3 hr
examination. Application exam (Scenario based)

Rules of the game (Cardinal)
1. Answer in point form (very important)
2. Skip a line after each and every point
3. Write legibly
4. Answer each question on a separate
page
5. Use tabular format (wherever
possible)

Introduction to Auditing
Overall Audit objective (ISA 200: 3)
The objective of an audit is to
expression of an opinion on
whether the financial statements
are prepared, in all material
respects, in accordance with an
applicable financial reporting
framework.
ISAs do not impose responsibilities on management or
those charged with governance and do not override
laws and regulations that govern their responsibilities.
However, an audit in accordance with ISAs is
conducted on the premise that management and,
where appropriate, those charged with governance
have acknowledged certain responsibilities that are
fundamental to the conduct of the audit.
The audit of the financial statements does not relieve

management or those charged with governance of
their responsibilities.
Basic Auditing premise
An audit in accordance with ISAs is conducted on the
premise that management and, where appropriate,
those charged with governance have acknowledged and
understand that they have responsibility:
(a) For the preparation of the financial statements in
accordance with the applicable financial reporting
framework
(b) For the design of internal control necessary to
enable the preparation of financial statements that are
free from material misstatement, whether due to fraud
or error; and
Basic Auditing premise (cont’d)
(c) To provide the auditor with:
 (i) Access to all information of which management is aware
that is relevant to the preparation of the financial
statements such as records, documentation etc
 (ii) Additional information that the auditor may request
from management and for the purpose of the audit
 (iii) Unrestricted access to persons within the entity from
whom the auditor determines it necessary to obtain audit
evidence

Basic Auditing premise
Because of the significance of the premise to
the conduct of an audit, the auditor is
required to obtain the agreement of
management and, where appropriate, those
charged with governance that they
acknowledge and understand that they have
the responsibilities set out in the basic
premise as a precondition for accepting the
audit engagement. (ISA 200: A10)

An audit is not conducted on a 100% sample , as
such an auditor can only obtain reasonable
assurance (not absolute) about whether the
financial statements as a whole are free from
material misstatement, whether due to fraud or
error.
An auditor cannot give an absolute assurance due to
inherent limitations of an audit as well as limitations
of internal controls.

Reasonable assurance is a high level of assurance. It
is obtained when the auditor has obtained sufficient
appropriate audit evidence to reduce audit risk to an
acceptably low level

Limitations of an Audit
 An audit is performed on a sample basis (balance
between cost and benefit), the need for audit to be
conducted within a reasonable period of time
within a reasonable of time at at reasonable cost
Audit evidence is persuasive rather than
conclusive
Nature of financial reporting
Limitations of internal controls:
 management override of controls
collusion
Limitations of an Audit Qsn (ACC 214 June Exam
A junior member of the audit team of 21st Century registered auditors
was at the conclusion of the audit, requested to make sure that the
audit working papers were all properly filed and finalised. What
struck him was the volume of information in the working papers.
Having seen all the evidence together, he really felt that the audit team
was in a strong position to certify the financial statements as correct,
rather than just stating in the audit report that, “in our opinion, the
financial statements, present fairly in all material respects….”
He asked you, his senior why, having all this work, the financial
statements had not been certified as correct.
Required
Explain in detail to your junior, why the financial statements cannot
be certified. Include in your answer an explanation of the limitations
of the internal controls and the limitations of an audit.
(12 marks)
Limitations of an Audit Qsn Cont’d
Required
Explain in detail to your junior, why the financial
statements cannot be certified. Include in your
answer an explanation of the limitations of the
internal controls and the limitations of an audit.
(12 marks)

Key definitions
Audit risk
Audit risk – The risk that the auditor expresses an
inappropriate audit opinion when the financial
statements are materially misstated. Audit risk is a
function of the risks of material misstatement and
detection risk.
NB// Audit risk does not include the risk that the
auditor expresses an opinion that the financial
statements are materially misstated when they are
not. This risk is ordinarily insignificant.
Key definitions (Cont’d)
Risk of material misstatement (RMM):
Is the risk that the financial statements are
materially misstated prior to an audit being
performed on them. RMM consists of two
components which are ; Inherent risk and
Control risk

Inherent risk
It the susceptibility of an assertion about
a class of transaction, account balance or
disclosure to a misstatement that could
be material either individually or when
aggregated with other misstatements

Control risk
Is the risk that a misstatement could occur in
the financial statements, that could be
material, (either individually or when
aggregated with other misstatements), will
not be prevented, or detected or corrected on
a timely basis by the entity’s internal controls

Detection risk
Is the risk that the procedures performed
by the auditor to reduce audit risk to an
acceptably low level will not detect a
misstatement that exist and that could
be material , either individually or when
aggregated with other misstatements

The Audit risk Model
RMM
Audit risk = IR * CR
* DR

Professional skepticism
Is an attitude that includes a questioning
mind, being alert to conditions which
may indicate possible misstatements

Professional skepticism (Cont’d)
It includes being alert to:
Audit evidence that contradicts each other
Conditions that may indicate possible fraud
Circumstances that suggest the need for
audit procedures in addition to those required
by ISAs
Information that brings into question the
reliability of documents and responses to
inquiries to be used as audit evidence
The CODE OF PROFESSIONAL CONDUCT

THE CODE OF PROFESSIONAL CONDUCT
A distinguishing mark of the accountancy and
auditing profession is its acceptance of the
responsibility to act in the public interest. Therefore,
an auditor’s responsibility is not exclusively to satisfy
the needs of an individual client. In acting in the
public interest, the auditor has to comply with the
code of professional conduct (CPC)
Code.

FUNDAMENTAL PRINCIPLES
1.Integrity
2.Objectivity
3.Professional competence & due care
4.Confidentiality
5.Professional behaviour
IESBA, SAICA CPC

FUNDAMENTAL PRINCIPLES (FPs) (Cont’d
Integrity – to be straight forward and honest in all
professional and business relationships
An auditor shall not knowingly be associated with

reports where the auditor believes:
• contains a materially false or misleading
statement
•Omits or obscures information required to be
included where such omission or obscurity would
be misleading
FUNDAMENTAL PRINCIPLES (FPs) (Cont’d
Objectivity – not to allow bias, conflict of

interest or undue influence of others to
override professional or business
judgements

CODE OF PROFESSIONAL CONDUCT
Professional competence and due care – to
maintain professional knowledge and skill at
the level required to ensure that a client
receives competent professional services based
on current developments in practice,
legislation and technical and act diligengtly
and in accordance with applicable technical
and professional standards

CODE OF PROFESSIONAL CONDUCT (Cont’d)
Confidentiality – to respect the confidentiality

of information acquired as a result of
professional and business relationships and
therefore , not disclose any such information to
third parties without proper and specific
authority, unless there is a legal or professional
right or duty to disclose, nor use the
information for personal advantage

The following are circumstances where an auditor

may be required to disclose confidential
information:
• disclosure is permitted by law and is authorised

by the client
• disclosure is required by law
•When there is a professional duty to disclose
when not prohibited by law
Professional behaviour – to comply with relevant
laws and regulations and avoid any action that
discredits the auditing profession
Auditors shall be honest and truthful in

marketing their work and not:
a) Make exaggerated claims for the services they
are able to offer
b) Make disparaging references or
unsubstantiated comparisons to the work of
others Presented by : Kudakwashe Ndlovu (CA)Z 31
Threats to Compliance with FPs
Self-interest threat - the threat that a financial or other
interest will inappropriately influence the auditor’s
judgment or behaviour;
Examples of circumstances that create self-interest

threats include:
• A member of the assurance team having a direct
financial interest in the client.
• A firm having undue dependence on total fees from a
client.
• A firm entering into a contingent fee arrangement
Self-review threat - the threat that auditor will not
appropriately evaluate the results of a previous
judgment made or service performed by the auditor, or
by another individual within the audit firm, on which
the auditor will rely when forming a judgment as part
of providing a current service;
Eg A member of the assurance team being, or

having recently been, a director or officer of
the client.
Advocacy threat - the threat that the
auditor will promote a client’s position to
the point that the auditor’s objectivity is
compromised;
e.g. The firm promoting shares in an audit

client.

Familiarity threat - the threat that due to a
long or close relationship with a client, a
auditor will be too sympathetic to their
interests or too accepting of their work;
E.g A member of the engagement team having a

close or immediate family member who is a
director or officer of the client.
Threats to Compliance with fundamental PPs
Intimidation threat - the threat that the
auditor will be deterred from acting
objectively because of actual or perceived
pressures, including attempts to exercise
undue influence over the auditor
E.g A firm being threatened with dismissal from a

client engagement.

Safeguards to reduce threats
Safeguards are actions or other measures that may
eliminate threats or reduce them to an acceptable
level these include:
• Leadership that stresses the importance of

compliance with fundamental principles
•A disciplinary mechanism to promote compliance
with policies and procedures
•Using different partners & engagement teams with
separate reporting lines for the provision of non
assurance services to an assurance client
Safeguards to reduce threats (Cont’d)
•Educational, training and experience requirements
for entry into the profession.
• CPDs
• Corporate governance legislation or regulations.
• Professional standards.
• Professional or regulatory monitoring and
disciplinary procedures.
• External review

Recruiting (Sec 150.10)
A registered auditor shall not, directly or indirectly, offer
employment to an employee of another registered auditor
without first informing the latter.
However, an employee of another registered auditor who, in

response to an advertisement or of his own initiative, applies to
him for employment may be engaged subject to his informing
the applicant’s employer.

Fees and Other Types of Remuneration (Sec 240)
When entering into negotiations regarding professional
services, a registered auditor may quote whatever fee is deemed
appropriate. The fact that one registered auditor may quote a fee
lower than another is not in itself unethical.
Nevertheless, there may be threats to compliance with the

fundamental principles arising from the level of fees quoted.
For example, a self-interest threat to professional competence

and due care is created if the fee quoted is so low that it may be
difficult to perform the engagement in accordance with
applicable technical and professional standards for that price.
Fees and Other Types of Remuneration (Sec 240)
Contingent fees
Contingent fees are widely used for certain types of non-
assurance engagements .They may, however, create threats to
compliance with the fundamental principles in certain
circumstances. They may create a self-interest threat to
objectivity.
Wef 1 March 2014. SAICA no longer allows any of its member

to charge contingent fees for tax return preparation.

Marketing Professional Services (Sec 250)
When a registered auditor solicits new work through advertising or
other forms of marketing, there may be a threat to compliance with
the fundamental principles.
 For example, a self-interest threat to compliance with the principle
of professional behaviour is created if services, achievements, or
products are marketed in a way that is inconsistent with that
principle,
A registered auditor shall not bring the profession into disrepute when
marketing professional services. The auditor shall be honest and
truthful and shall not:
(a) Make exaggerated claims for services offered, qualifications
possessed, or experience gained; or
(b) Make disparaging references or unsubstantiated comparisons to
the work of another.Presented by : Kudakwashe Ndlovu (CA)Z 42
Gifts and Hospitality (Sec 260)
Gifts from clients pose a threat to compliance with Fundaments
principles.
The existence and significance of any threat depends on the
nature, value, and intent of the offer.

Custody of client assets (Sec 270)
A registered auditor shall not assume custody of client monies or other
assets unless permitted to do so by law and, if so, in compliance with
any additional legal duties imposed on a registered auditor holding
such assets.
The holding of client assets creates a self interest threat.
A registered auditor entrusted with money (or other assets) belonging
to others shall therefore:
(a) Keep such assets separately from personal or firm assets;
(b) Use such assets only for the purpose for which they are intended;
(c) At all times be ready to account for those assets and any income,
dividends, or gains generated, to any persons entitled to such
accounting; and
(d) Comply with all relevant laws and regulations relevant to the
holding of and accounting for such assets.
Custody of client assets (Sec 270)
A registered auditor is required to make appropriate inquiries
about the source of such assets and consider legal and
regulatory obligations. eg, if the registered auditor has reason to
believe that the assets were derived from illegal activities, such
as money laundering, a threat to compliance with the
fundamental principles would be created.
In such situations, the registered auditor shall not accept or

hold the client monies

CPC Illustrative Question
Renda Manyika CA(Z) is a registered auditor and conducts the

audit of MSU (Pty) Ltd, as well as acting for the company in
tax matters. Barbican Bank, which has a substantial long-term
investment in MSU (Pty) Ltd, requires, in terms of its
agreement with MSU (Pty) Ltd, that the company’s annual
financial statements be audited by a registered auditor and
submitted to the bank. During the current year’s audit of this
client, Renda discovers that Arjen Robben, a major
shareholder and managing director of the company, has been
maintaining another set of accounting records which reflect
the true situation whilst he has been auditing and submitting
tax returns based on a fraudulent set of accounting records.
When Renda confronts Arjen Robben with this evidence, he admits
that he has done this for some years but indicates that he is not at
all worried about it, because he was only able to get away with it due
to the inadequate audit which Renda had conducted over the years.
Robben further states that should Renda report the matter to
anyone, he will simply state that he was a willing partner to the
fraud.
On scrutiny of correspondence from his past dealings with Robben

and of prior audit working papers, Renda realises that he could
indeed appear to have conspired with Robben as his audit
documentation could be considered to be inadequate and he had
not followed up on a number of queries concerning the audit.
Furthermore, a large percentage of her professional fees comes from
work referred to her by Robben.
REQUIRED
Discuss fully the situation in which Renda finds himself in
relation to the Code of Professional Conduct (13 marks)
-
CPC Illustrative Suggested Solution
There is no doubt that Renda has failed to comply with a number
of the fundamental principles on which the code is based.
• Objectivity - Section 120 - by allowing himself to get to a
situation where a large percentage of her professional fees come
from work referred by Robben, he has created a self-interest
threat to his independence. (2)
• Professional Competence and Due Care - Section 130. As the

prior year progressed, Renda failed to realise that his poor
performance posed a threat to his compliance with this principle.
It appears that he became too “comfortable” with the
engagement and clearly did not apply the ISAs adequately, e.g. by
- of his poor working papers and his failure to follow up
virtue
queries. Presented by : Kudakwashe Ndlovu (CA)Z 49
Integrity - Section 110

If Renda was to take no action he would be in breach of this
section which states that professional accountants should be
straightforward, honest and truthful (1)
The only safeguard to prevent this would be to report Arjen

Robben and take the consequences (1)
-
The fraudulent tax returns submitted to ZIMRA. Renda should:

• Promptly advise Robben to make full disclosure to ZIMRA
concerning the fraudulent submissions previously made. (1)
• She should also advise Robben of the consequences of him
failing to do so, e.g. potential penalties, and of the powers which
ZIMRA has in these situations e.g. call for information from
himsel. (1)
• Inform Robben that he will no longer act for him in any tax
matters and that he will be resigning from her appointment
withMSU (Pty) Ltd (both tax and audit). (1)
• This is the only safeguard which would adequately address the
threats
- posed to the fundamental principles by continuing a
relationship with Robben
Confidentiality – Section 140
• In terms of this section, Renda will be in breach of the Code if
he divulges confidential information about a client unless. (1)
− he has permission to do so (unlikely to get this); (1)
− there is a legal duty to do so (1)
− there is a professional duty to do so. (1)

Responsibilities

The audit process
1. Preliminary engagement activities
2. Planning
(Establish audit strategy & plan)
3. Obtain audit evidence

( SARs,TOCs,SPs)
4. Evaluate, conclude and report

Background
The first step in the audit process is to perform
preliminary engagement activities. During this
step the auditor assesses whether or not to act as
an auditor for a new client or to continue acting as
an auditor for an existing client. The auditor
should take into consideration the risks of legal
liability or reputational damage, whether a quality
audit can be conducted in terms of ISAs as well as
regulatory and ethical requirements.
1. Client investigation
2. Determination of skills, competence &

resources
3. Set engagement terms (engagement

letter) – ISA 210

a) Client investigation

Client investigation (cont’d)

b) Determination of skills & resources

b)Determination of skills & resources

c) Agree engagement terms (ISA 210)

c) Agree engagement terms (ISA 210)
Agree engagement terms highlighting
management and auditor’s
responsibilities

Engagement letter
An engagement letter is a formal
document that defines the legal
relationship between the audit firm
and the client

Engagement letter (Cont’d)
Contents of an engagement letter (ISA 210: 10; A23
• The responsibilities of an auditor
• The responsibilities of management
• The objective and scope of the audit of the financial
statements
• Identification of the applicable financial reporting
framework .
• Reference to expected form and content of any reports
• The basis on which fees are computed and any billing
arrangements

Contents of an Engagement letter (Cont’d
• the fact that there is an unavoidable risk that some
misstatements may not be detected (due to audit
limitations)
• Planning and audit execution arrangements
•An expectation that management will provide written
representations
•A request for management to acknowledge receipt of the
engagement letter and to agree to its terms
•Any restriction of the auditor’s liability when such
possibility exists

Engagement letter (Cont’d
Audit of components
When the auditor of a parent entity is also the auditor of a
component, the factors that may influence the decision
whether to send a separate audit engagement letter to the
component include the following:
•Who appoints the component auditor;

• Whether a separate auditor’s report is to be issued on the
component;
• Legal requirements in relation to audit appointments;
• Degree of ownership by parent; and
• Degree of independence of the component management
from the parent entity.
Engagement letter (Cont’d)
Recurring audits (ISA 210 : 13, A28
The auditor may decide not to send a new audit engagement letter or other
written agreement each period. However, the following factors may make it
appropriate to revise the terms of the audit engagement or to remind the
entity of existing terms:
• Any indication that the entity misunderstands the objective and scope of
the audit.
• Any revised or special terms of the audit engagement.
• A recent change of senior management.
• A significant change in ownership.
• A significant change in nature or size of the entity’s business.
• A change in legal or regulatory requirements.
• A change in the financial reporting framework adopted in the preparation
of the financial statements.
• A change in other reporting requirements.
Types of questions that may be asked
• Discuss your concerns regarding the
acceptance of the audit client.
• Discuss the factors to consider prior to
accepting the audit client.
• Discuss your concerns with regards to the
engagement letter. (Criticise a given
Engagement letter)

Example : Engagement letter Qsn

ISA 220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS
Engagement quality control reviewer (ECQR)
A partner, other person in the firm, suitably
qualified external person, or a team made up
of such individuals, none of whom is part of
the engagement team, with sufficient and
appropriate experience and authority to
objectively evaluate the significant judgments
the engagement team made and the
conclusions it reached in formulating the
auditor’s report.
Engagement Quality Control Review
For audits of financial statements of listed entities, and those
other audit engagements for which the firm has determined
that an engagement quality control review is required, the
engagement partner shall:
(a) Determine that an engagement quality control reviewer
has been appointed;
(b) Discuss significant matters arising during the audit
engagement, including those identified during the
engagement quality control review, with the engagement
quality control reviewer; and
(c) Not date the auditor’s report until the completion of the
engagement quality control review.
Engagement Quality Control Review
The engagement quality control reviewer shall perform an
objective evaluation of the significant judgments made by the
engagement team, and the conclusions reached in formulating
the auditor’s report. This evaluation shall involve:
(a) Discussion of significant matters with the engagement
partner;
(b) Review of the financial statements and the proposed
auditor’s report;
(c) Review of selected audit documentation relating to the
significant judgments the engagement team made and the
conclusions it reached; and
(d) Evaluation of the conclusions reached in formulating the
auditor’s report and consideration of whether the proposed
auditor’s report isPresented
appropriate
by : Kudakwashe Ndlovu (CA)Z 72
ISA 220 QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS
The engagement partner shall take

responsibility for the overall quality
on each audit engagement to which
that partner is assigned

2. Planning (ISA 300, 315,320,330)
“Failing to plan, is planning to fail”

2. Planning (Cont’d)
After an engagement letter has been signed
and agreed, the auditor goes on to plan for
the audit.
Usually, the key engagement team members

are involved in planning , i.e the
engagement partner, manager and the
AIC.(ISA 300:5)

Audit strategy
The auditor shall establish an overall audit strategy that sets
the scope, timing and direction of the audit, and that guides
the development of the audit plan.
In establishing the overall audit strategy, the auditor

shall:
(a) Identify the characteristics of the engagement (scope)
(b) Ascertain the reporting objectives of the engagement
(c) Consider the risk factors that are significant
(d) Consider results of preliminary engagement activities
(e) Ascertain the nature, timing and extent of resources

The Audit Plan
The auditor shall develop an audit plan
that shall include a description of:
The nature, timing and extent of:
• planned risk assessment
•planned further audit procedures at
the assertion level
•Other planned audit procedures

The Audit Plan Vs Audit Strategy
An Audit plan is a subset of an

Audit Strategy.

The planning process
1. Obtain an understanding of the
entity and its internal controls
(PARs, Discussions, System
documentation, (ISA 315)
2. Assess risk (@ OFSL and at AL)
3. Set materiality (ISA 320)
4. Develop Audit plan and Audit
Strategy (Risk response) (ISA330)
Understanding the entity & its environment
The Entity , its Environment and Internal Controls
The auditor shall obtain an understanding of the following:
(a) Relevant industry, regulatory, and other external factors
including the
applicable financial reporting framework.
(b) The nature of the entity(operations, governance structures):
(c) The entity’s selection and application of accounting policies
(d) The entity’s objectives and strategies, and those related
business risks
(e) The measurement and review of the entity’s financial
performance.
(f) The entity’s internal controls (culture of the org)

Risk assessment
After obtaining knowledge, the auditor shall

identify and assess risk :
• At the overall financial statement level

•At assertion level

Risk at overall financial statement level
Risk Indicator Risk Description
Operations in regions or The AFS may be materially misstated as the entity

countries with strict might not comply properly with the relevant laws and
regulations/different regulations possibly resulting in material
regulations to Zimbabwe. misstatements of unrecorded liabilities, expenses, etc.
Going concern issues - The AFS may be materially misstated as the going
concern assumption might not be properly accounted
for and/or disclosed.
- The AFS may be materially misstated by engaging in
fraudulent financial reporting to hide going concern
threat.
Financials to be used to The AFS may be materially misstated as directors
obtain financing from the might engage in fraudulent financial reporting, i.e.
bank. overstatement of assets and profits and
understatement of liabilities and expenses to ensure
that financing will be obtained.
Risk Indicator Risk Description
Changes in the industry The AFS may be materially misstated as the entity
and management does not might not comply with the changes to the laws
want to comply. Companies Act, Banking Act etc., in the industry within
which it operates.
Expanding into new The AFS may be materially misstated as the control
locations/ decentralisation environment in other locations might not be operating
of the entity. effectively.
Lack of personnel with The AFS may be materially misstated as there might be
appropriate accounting errors occurring in the preparation of financial records.
and financial reporting
skills.
Management receives The AFS may be materially misstated as directors
bonuses driven by profits might engage in fraudulent financial reporting, i.e.
overstatement of revenue and understatement of
expenses to maximise bonuses.
Risk Risk Description
Indicator
New client. The AFS may be materially misstated as the
opening balances might be incorrect since we were not auditors in
prior years.
• The AFS may be materially misstated as material misstatements
could go undetected as we are not familiar with the client.
• The AFS may be materially misstated by management due to the
fact that the new auditors have limited knowledge of the entity.
Management’s The AFS may be materially misstated as the control environment
integrity might be compromised by management who lacks integrity.
questionable.
Use of work of The AFS may be materially misstated as the third party might not
third party be competent and appropriately qualified in performing the work
(ISA 600, required for audit evidence.
610,620)
Indicator
Tight audit - The AFS may be materially misstated as management
deadline. might not have sufficient time to properly account and
disclose post balance sheet events (Subsequent
events).
- There is a risk that the auditor might not have sufficient time to
obtain the audit evidence resulting in material misstatement
going undetected.
Listed on the The AFS might be materially misstated as the company
ZSE. might not comply with ZSE regulations resulting in the delisting
of the company and affecting the going concern of the company.
Change of the The AFS may be materially misstated as the financial data might
accounting not be properly transferred from the old accounting system to the
software. new accounting system.

Indicator
Group set up The AFS may be materially misstated as errors might occur during
consolidation as it involves an intricate process possibly resulting
in material misstatements.
The AFS may be materially misstated as related party transactions

might not be eliminated on consolidation.
The AFS may be materially misstated as the consolidation

might not be properly done in terms of IAS 27.
Acquired a The AFS may be materially misstated as IFRS 3 might

subsidiary not be properly accounted for.
during the yr

This is risk that relate pervasively to the
financial statements as a whole and
potentially affect many assertions.
E.g. A company is listed on the ZSE (RI)
There is a risk that the AFS may be materially
misstated due to the non compliance with the
stringent ZSE regulations. (RD)
Refer to Appendix 2 of ISA 315 risk indicators

MSU Holdings is a company that makes and sells paper
and is listed on the ZSE Ltd. MSU has been audited by
Super Auditors since its inception 14 years ago. MSU
has a year end of 31 December 2013. The audit report is
required on 20 January 2014. During the financial year
under review MSU gained control of GZU (Pty) Ltd, a
company that leases out printers for a long term. GZU
has a 30 September year end. For the 2013 financial
year, GZU will be audited by one of the major firms in
the country. Directors of MSU receive share options
based on net profit.

Required:
Discuss the audit risks at the overall financial

statement level of MSU Ltd and its group for the
year ended 31 December 2013. (8 marks)
Required:
Discuss the risk of material misstatement at the

overall financial statement level of MSU Ltd and
its group for the year ended 31 December 2013. (8
marks)
Risk Indicator Risk description
Risk at overall
Listed on the
financial statement level
•The AFS may be materially misstated as MSU Holdings
ZSE might not comply with ZSE regulations.
•The AFS may be materially misstated as management

might overstate the profits in order to manage the share
price
A group set up • Intercompany balances might not be properly
eliminated
•Internal controls might not be uniformly applied accross
the group
•The financial statements of GZU might not be properly
adjusted for consolidation purposes
Tight audit • Subsequent events might not be properly identified
deadline • The AFS might contain errors due to time pressure
Control gained • At the date of gaining control assets and liabilities might
during the year not have been measured in accordance with IFRS 3
therefore misstating goodwill
Risk at assertion level
Risk at the assertion level
E.g. Sales are made to foreign customers in their
respective currencies
There is a risk that revenue might not be
translated at the correct exchange rate (accuracy).

Risk at assertion level (Example 1)
MSU Ltd has out-sourced the capturing of its financial data
to Japu Solutions (Pty) Ltd. Japu Solutions is paid a
standard fee plus commission on sales reported for the
month. MSU Ltd reported revenue of US 100mil for the
year-ended 31 December 2013. Revenue comprises of sales
made to local and foreign customers. Foreign customers
are invoiced using the currency of their respective
countries. Directors of MSU ltd earn a performance related
bonus which is a percentage of the reported profit
Required:
assertion level on revenue of MSU Ltd for the year
ended 31 December 2013.
Risk at assertion level
,
Risk factor Risk description
Foreign receipts Sales might not have been translated at the correct
exchange rates as required by IAS 21(Accuracy)
Commission paid Revenue might be overstated by Japu Solutions by recording
to Japu Solutions fictitious sales so as to increase the commission
(Occurrence)
Japu Soltuions Revenue might be recognised net of the commission paid
paid commission (accuracy, completeness).
based on sales
Performance Management might recognise fictitious revenue in order to
related bonus receive increase their bonus(occurrence)
Management might recognise receipts of the following

period in the current period so as to increase their bonus (
(cut-off)
You are a first year trainee accountant of DBO Chartered
Accountants. The audit senior on the job has provided you with
the following information which you will require in the audit of
NUST (Pvt) Ltd.
Revenue for NUST comprises sales made to local and foreign
customers. Foreign customers are invoiced in their respective
currencies. During the year, NUST entered into a forward
exchange contract (FEC) for the goods NUST sold to one of
their once off foreign customers to protect itself against foreign
currency fluctuations. The normal credit terms are 30 days.
NUST provides for credit losses at 2% of the trade receivables
balance. Management of NUST receives a bonus based on profit
for the year. At year-end, trade receivables were factored to
provide NUST with the cash flow that was required.
Required:
assertion level on revenue and debtors of NUST Ltd for
the year ended 31 December 2013.
Present your answers using assertions

Risk at assertion level (Suggested sln)
Revenue - RMM
Risk Indicator Risk description Assertion (s)
Foreign customers There is a risk that revenue from foreign Accuracy
are invoiced in foreign customers might not be translated at the
currencies correct exchange rate.
Management There is a risk that revenue might be Cut-off
receives a bonus recognised in the incorrect period in
based on profit for order to inflate the revenue figure for
the year. bigger bonuses.
There is a risk that management Occurrence

might record fictitious sales in order
to inflate the revenue figure for
bigger bonuses.

Debtors- RMM
Risk Indicator Risk description Assertion (s)
Foreign customers There is a risk that trade receivables Valuation
are invoiced might not be translated at the correct
in their foreign closing rate at year-end.
currencies.
Once-off FEC for There is a risk that FEC gains/losses Valuation
goods sold to Foreign might not be accurately accounted for
customers. resulting in misstatement of trade
receivables account.
Management There is a risk that fictitious debtors Existence
receive bonuses could be recorded in the financial records
based on net in order to inflate the revenue figure for
profit for the year. bigger bonuses.

Debtors- RMM
Risk Risk description Assertion (s)
Indicator
Allowance for There is a risk that the allowance for credit losses Valuation
credit losses. is understated to inflate the trade receivables (Accuracy and
account and reflect NUST’s financial position in completeness -
a better light. afcls
Trade There is a risk that the trade receivables account Rights and
receivables does not belong to NUST Ltd since debtors have obligation
are factored. been factored.

Assertions ISA 315 (A124)
These are representations by
management (explicit or otherwise) ,
embodied in the financial statements

SIGNIFICANT RISKS
What should the auditor consider when deciding if a risk is
significant?
Is the risk a risk of fraud? – e.g. revenue recognition

Is the risk related to recent significant economic, accounting or
other developments? – e.g. major economic downturn (GG)
Is (are) the transaction(s) complex? – e.g. loyalty programmes,
Does the risk involve significant transactions with related parties?
– e.g. significant inter-company loans.
What is the degree of subjectivity in the measurement of financial
information related to the risk? – e.g. provisions requiring
judgement.
Does the risk involve significant transactions that are outside the
normal course of business for the entity/or appear unusual? - e.g.
company bakes party cakes but suddenly trades in forex
transactions. Presented by : Kudakwashe Ndlovu (CA)Z 100
Assertions – Class of transactions
Occurrence: transactions and events that have been
recorded have occurred and pertain to the entity.
Completeness: all transactions and events that
should have been recorded have been recorded
Accuracy— all amount have been recorded
appropriately.
Cut – off —transactions and events have been
recorded in the correct accounting period.
Classification—transactions and events have been
recorded in the proper accounts.

Assertions – Account balances
Existence— A,L & E exist.
Rights and obligations —the entity holds or controls
the rights to assets & liabilities are truly obligations of
the entity.
Completeness: A,L & E that should have been
recorded have been recorded.
Valuation and allocation — A,L & E are included in
the financial statements at appropriate amounts and
any resulting valuation or allocation adjustments are
appropriately recorded.

Risk assessment
After we have identified risk, we then go on to assess the risk identified.
Risk is classified into high/low (significant/not significant)Significant risk
are those risks that require special audit attention. In assessing significant
risk the auditor should consider the following
(a)Whether the risk is a risk of fraud;

(b) Whether the risk is related to recent significant economic, accounting
or other developments and, therefore, requires specific attention;
(c) The complexity of transactions;
(d) Whether the risk involves significant transactions with related parties;
(e) The degree of subjectivity in the measurement of financial information
related to the risk, especially those measurements involving a wide range
of measurement uncertainty; and
(f) Whether the risk involves significant transactions that are outside the
normal course of business for the entity, or that otherwise appear to be
unusual.
Planning (Cont’d)
Planning is not a discrete phase
of an audit, it is a continual
process

Materiality (ISA 320)
 Misstatements, including omissions, are
considered to be material if they could reasonably
be expected to influence the economic decisions of
users taken on the basis of the financial
statements
 There is an inverse relationship between planning

materiality and inherent risk. i.e. the higher the
inherent risk the lower the materiality and vice
versa.
 Materiality is subjective, - 10 auditors would probably
come up with ten different decisions when setting a
materiality
 Materiality is relative – what is ‘material’ will vary from

user and from audit client to audit client. What is
regarded as material for the financial statements of a
medium company , may be totally insignificant to an
international conglomerate.

 Materiality is both quantitative and qualitative
 An amount which is quantitatively material will be one

which is exceeds the amount which the auditor
determines as material.
 A matter which is qualitatively material will be one

which is regarded as material when judged a factor
other than amount. Eg important disclosure may be
ommitted from the financial statements
Types of Materiality
Planning Materiality – set as planning
Performance materiality – to be used during execution
Final materiality – set at the end of the audit (at the

evaluation stage)

Responses to assessed risks (ISA 330)
Responses to assessed risks are made at

both overall and at assertion level

Overall Audit responses
•Emphasizing to the engagement team the need to maintain
professional skepticism.
• Assigning more experienced staff
• Providing more supervision.
• Incorporating additional elements of unpredictability in the
selection of further audit procedures to be performed.
• Maker changes to the nature, timing or extent of audit
procedures
•Conducting more audit procedures as of the period end rather
than at an interim date.
• Obtaining more extensive audit evidence from substantive
procedures.
• Increasing the number of locations to be included in the audit
scope (lower materiality)
Audit approach (Nature)
The auditor needs to decide on whether to go the
combined approach or the substantive approach.
The combined approach incorporates, TOCs and

less of substantive procedures

The combined approach
The combined approach is affected by the following factors:
Necessity
Substantive procedures alone will not result in sufficient audit
evidence
Possibility`1`
• the necessary softwares are there
• the control environment is sound
•Electronic data is there
Desirability
The combined approach is very efficient (less time is consumed
Substantive tests – Factors to consider
It is ideal to perform substantive procedures when
the following factors are available:
Weak internal control environment

-Lack of internal controls
-Tests of controls indicate no/ little reliance on
internal controls
-Few transactions
-So requested by the client

Planning
Types of questions that may be asked
 Discuss the audit risk / risk of material
misstatement at the overall financial statement
level
 Discuss the effect risk assessment at the overall
financial statement level will have on the overall
audit strategy.
 Discuss the risk of material misstatement at the
assertion level. You may be required to limit your
answer to specific assertions
 Discuss the effect risk assessment at the assertion
level will have on the audit plan
Auditor’s responsibility iro Fraud (ISA 240)
The primary responsibility for the prevention and

detection of fraud rests with both those charged with
governance of the entity and management. It is
important that management, with the oversight of
those charged with governance, place a strong
emphasis on fraud prevention, which may reduce
opportunities for fraud to take place, and fraud
deterrence, which could persuade individuals not to
commit fraud because of the likelihood of detection
and punishment.
Owing to the Inherent limitations of an audit,
there is an unavoidable risk that some material
misstatements may not be detected.
The risk of not detecting a material

misstatement relating to fraud is high due to
the fact that fraud may involve sophisticated
and carefully organised schemes, such as
forgery and misrepresentations being made to
the auditor
Owing to the Inherent limitations of an audit,
there is an unavoidable risk that some material
misstatements may not be detected.
The risk of not detecting a material

misstatement relating to fraud is high due to
the fact that fraud may involve sophisticated
and carefully organised schemes, such as
forgery and misrepresentations being made to
the auditor
Fraud detection
Fraud is more likely to be detected by tips than by any

other method as it involves well thought and designed
schemes.
Fraud detection
According to the ACFE 2012 report , fraud was detected
through the following:
Tips 43.0%
Management review 14.6%
Internal Audit 14.4%
By Accident 7%
Account reconciliation 4.8%
Document examination 4.1%
External Audit 3.3%
Notified by police 3.0%
Surveillance/ Monitoring 1.9%
Confession 1.5%
IT controls 1.1%
Other 1.1%
How occupational Fraud is commited
 Asset misappropriation schemes, in which an employee steals
or misuses the organization’s resources (e.g., theft of company
cash, false billing schemes or inflated expense reports)
 Corruption schemes, in which an employee misuses his or her
influence in a business transaction in a way that violates his
or her duty to the employer in order to gain a direct or
indirect benefit (e.g., schemes involving bribery or conflicts
of interest)
 Financial statement fraud schemes, in which an employee
intentionally causes a misstatement or omission of material
information in the organization’s financial reports (e.g.,
recording fictitious revenues, understating reported expenses
or artificially inflating reported assets)

The Fraud Triangle

Incentives/ Pressures (Examples)
•Known or anticipated future employee
layoffs
•Promotions, compensation or other rewards
inconsistent with expectations
•Social pressures

Opportunities (Examples)
• large amounts of cash on hand
•Inventory items that are small in size, of high
value or in high demand
•Inadequate segregation of duties
•Inadequate physical safeguards over cash.

Attitudes/ Rationalisations (Examples)
• “ I only borrowed the money”

• “ After all I am being underpaid here”

Audit documentation (ISA 230)
The auditor has to prepare audit documentation that is
sufficient to enable an experienced auditor, having no
previous connection with the audit, to understand:
•The nature, timing and extent of audit procedures

performed to comply with ISAs and applicable legal and
regulatory requirements
•The results of the audit procedures performed and the
audit evidence performed
•Significant matters arising during the audit, the
conclusions reached thereon and significant professional
judgements made in reaching those conclusions
In documenting the nature, timing and extent
of audit procedures performed the auditor shall
record:
•The identifying characteristics of the specific

items or matters tested
•Who performed the audit work and the date
such work was completed
•Who reviewed the audit work performed and
the date and extent of such review.
In documenting the nature, timing and extent
of audit procedures performed the auditor shall
record:
•The identifying characteristics of the specific

items or matters tested
•Who performed the audit work and the date
such work was completed
•Who reviewed the audit work performed and
the date and extent of such review.
Uses of Audit documentation
Audit documentation serves a number of purposes:
• Assisting the engagement team to plan and perform the
audit.
• Assisting members of the engagement team responsible
for supervision to direct and supervise the audit work, and
to discharge their review responsibilities
• Enabling the engagement team to be accountable for its
work.
• Retaining a record of matters of continuing significance to
future audits.
• Enabling the conduct of quality control reviews and
inspections
OBTAIN AUDIT EVIDENCE (ISA 500)
Audit evidence is : Information used by
the auditor in arriving at the conclusion
on which the auditor’s opinion is based.
Audit evidence must be sufficient and
appropriate

Appropriateness is the measure of
quality (relevance & reliability).
Sufficiency is the measure of quantity.

(Quantity is affected by the auditor’s
assessment of risk)

Audit evidence is obtained through

the following:
1. Substantive procedures
- Substantive analytical procedures
- Test of detail
2. Test of controls
Reliability of Audit Evidence
The reliability of audit evidence is increased when it is
obtained from independent sources outside the
entity.
• The reliability of audit evidence that is generated
internally is increased when the related controls,
including those over its preparation and
maintenance, imposed by the entity are effective.
• Audit evidence obtained directly by the auditor (for
example, observation of the application of a control)
is more reliable than audit evidence obtained
indirectly or by inference (for example, inquiry about
the application of a control).
Reliability of Audit Evidence
• Audit evidence in documentary form, whether paper,
electronic, or other medium, is more reliable than
evidence obtained orally (for example, a
contemporaneously written record of a meeting is
more reliable than a subsequent oral representation of
the matters discussed).
• Audit evidence provided by original documents is
more reliable than audit evidence provided by
photocopies or facsimiles, or documents that have
been filmed, digitized or otherwise transformed into
electronic Presented by : Kudakwashe Ndlovu (CA)Z 133
Analytical procedures (ISA 520)
Analytical procedures are 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.

When designing and performing substantive
analytical procedures, there is need to
consider:
•Suitability
•Reliability of data
•Develop an expectation
•Determine the acceptable difference from the
expected amount

Analytical procedure examples:
• Compare month on month payroll costs in relation

to changes in the number of employees. Obtain and
corroborate explanations for variations.
•Compare current year sales revenue with prior year

sales revenue. Obtain and corroborate explanations
for the difference

Substantive procedures
Substantive procedure: An audit procedure designed
to detect material misstatements at the assertion
level. Substantive procedures comprise:
(a) Tests of details (of classes of transactions,

account balances, and disclosures); and
(b) Substantive analytical procedures.

Substantive procedures – Test of detail
When designing audit procedures use
the following verbs:
Inspect
Observe
Inquire
External Confirmation
Recalculate
Reperform
Analytical procedures
(ISA 500 par A14 to A25)
etc
NB//: NOT CHECK
Substantive procedures – Test of detail
When designing audit procedures try to address the
How, Why and What
Example of a badly worded procedure:

Check minutes to see if transactions were approved by
management.
Example of a good worded procedure:

Inspect(1) minutes of directors’ meetings(2) to confirm(3) that the
purchase of motor vehicles was authorised.
(1) verb (HOW)
(2) source (WHAT)
(3) reason with regard to the assertion (WHY)
Test of controls
A test of control is an audit

procedure designed to evaluate the
operating effectiveness of controls in
preventing, or detecting and
correcting, material misstatements
at the assertion level.
Standard documentation
Minutes (board of directors, shareholders, management
•Management representation letter
•Bank confirmation
•Attorneys confirmation letters
•Insurance contracts
•Previous year working papers
•Communication with previous auditors
•Reports of internal auditors
•Tax returns
•Budgets
•Management accounts
•Confirmation from third parties
Audit approach
Evaluate the effectiveness of the internal
controls. This is done by performing tests of
controls that test the effective functioning of
the internal controls.
The result of the test of controls will

determine the nature, scope and timing of
substantive procedures

Direction of testing
Understatement test – start from the
source documents to the accounting
records
Overstatement test – start from the

accounting records to source documents

Audit objectives (Income audit)
Assertion Audit objective
Completenes Test whether all income due to the entity in respect
s of goods or services rendered is completely
accounted for and nothing has been omitted
Accuracy Test whether Income is accounted for at the correct
amounts
Occurrence Test whether all recorded income is valid (or has
actually occurred)
Cut - off Test whether all income transactions are accounted
for in the correct accounting period
Presentation Test whether all Income is properly disclosed in
& disclosure terms of IFRS

Substantive audit procedures - Income
Income is the inflow of economic benefits which will
lead to an increase in equity
Recognition criteria – income should be recognised

when :
-There is an increase in economic benefits flowing
from a business transaction
-The amounts can be measured reliably

IAS 18 (Sale of goods) Recognise sales when:
•Risk and rewards have been transferred
•No continued managerial involvement
•Income & expenses can be measured reliably
•It is probable that economic benefits will flow to the
entity
Services – stage of completion

Documents in the sales cycle
• Internal sales orders
•Official price lists
•Delivery notes
•Invoices
•Credit notes
•Sales journal
•Policy documents (recognition of income)
•etc

Substantive audit programme - Income
1.Perform preliminary analytical procedures of sales per month:
• Identify risk areas of audit interest
• Obtain explanations for extraordinary fluctuations
2. Evaluate the effectiveness of the internal controls and the effect

thereof on the nature timing and extent of substantive audit
procedures

3. Understatement test –from source documents
Select a sample delivery notes and perform the following:
3.1 For delivery notes:

• Inspect the signature of the customer as evidence of
acknowledgement of receipt of goods
• Inspect signature/ stamp of the gate guard as evidence of
checking goods leaving the premises
• Follow the delivery note through to the entry in the stock
records and agree quantity and details thereof

3. 2 Follow the delivery note through to invoice and:
• Agree the name of the customer , date details of the goods
• Agree the quantity of goods and the description per
delivery note with the invoice
• Compare prices on the sales invoice with official price
list/ensure correct
• Inspect the authorisation of the sale by examining the
signature of the sales manager on the internal sales orders
• Ensure that the calculations on the invoice is correct by
testing the castings and calculations
• Test the calculation of VAT

3. 3 For sales invoices to the sales journal and ensure that:
• Amounts agree (for sales value and VAT)
• The date and other details agree
• Test that only the selling price (excluding VAT), is posted
to the ledger
3.4 Examine the list of numerical sales invoices for missing

numbers (completeness)

4. Overstatement test – GL to source docs
• Select sales from the sales journal and follow it through to
the sales invoice and the delivery note and agree details
there on (Name, date, amount)
• Examine the signature of the of the customer on the
delivery note as acknowledgement of receipt of goods

Statement Completenes Accuracy: Occurrence: Cut-off:
Assertions s
Purchases Compare Obtain Select sample Select a sample
current year purchase of purchase of purchase
purchases with journals and orders and invoices just
previous to cast total totals agree with before and after
assess to confirm it purchase year end to
reasonablenes correctness. invoices and confirm that it
s of variance. good received have been
notes. included and
excluded
respectively.

Test of controls
How should a test of control be performed
A test of control should address the following:
How : This is the verb that describes the action to the performed.
What : Here you should make reference to the source document

(e.g. The reconciliation on which the signature is made) and/or the
action (control) being performed (e.g. the password being entered
by the employee to gain access to the system).
Why : This describes the reason for performing a test of control. What
are the internal control objectives?

Test of controls
Example 1:
− Inspect the clock card summary reconciliation
for the manager’s signature as evidence of
approval.
Inspect = HOW = verb = ISA 500 par A14
Clock card summary reconciliation = WHAT =
Source document
For the manager’s signature as evidence of
approval = WHY =reason authorisation

Test of controls
Example 2:
Inquire from management whether all employees should
log into the system with a valid user identification
number and password, to ensure that only authorised
employees have access to the system.
Inquire = HOW = verb

All employees log into system with valid ID and
password = WHAT = action
Ensure only authorised employees have access = WHY =
reason = authorisation
Using the work of Internal Auditors (ISA 610
The external auditor has sole responsibility for the
audit opinion expressed, and that responsibility is
not reduced by the external auditor’s use of the work
of the internal audit function on the engagement.
Although the function may perform audit procedures
similar to those performed by the external auditor,
neither the internal audit function nor the internal
auditors are independent of the entity as is required
of the external auditor in an audit of financial
statements in accordance with ISA 200.6
The objectives of the external auditor, where the entity has an
internal audit function and the external auditor expects to
use the work of the function to modify the nature or timing,
or reduce the extent, of audit procedures to be performed
directly by the external auditor are:
(a) To determine whether the work of the internal audit
function can be used, and if so, in which areas and to what
extent;
and having made that determination:

(b) If using the work of the internal audit function, to
determine whether that work is adequate for purposes of the
audit. Presented by : Kudakwashe Ndlovu (CA)Z 158
Factors to consider (ISA 610
•Whether the internal audit function is free of any conflicting
responsibilities, for example, having managerial or
operational duties
•Whether those charged with governance oversee

employment decisions related to the internal audit function,
for example, determining the appropriate remuneration
policy.
Whether there are any constraints or restrictions placed on

the internal audit function by management or those charged
with governance, for example, in communicating the internal
audit function’s findings to theNdlovu
Presented by : Kudakwashe external
(CA)Z auditor. 159
•Whether the internal auditors are members of relevant
professional bodies and their memberships obligate their
compliance with relevant professional standards relating
to objectivity, or whether their internal policies achieve
the same objectives.
•Whether the internal audit function is adequately and

appropriately resourced relative to the size of the entity
and the nature of its operations.

• Whether activities of the internal audit function are
properly planned, supervised, reviewed or documented
•Whether, and to what extent management acts on the

recommendations of the internal audit function and how
such action is evidenced

The external auditor shall not use the work of the
internal audit function if the external auditor determines
that:
(a) The function’s organizational status and relevant
policies and procedures do not adequately support the
objectivity of internal auditors;
(b) The function lacks sufficient competence; or
(c) The function does not apply a systematic and
disciplined approach, including quality control.

Using the work of an expert (ISA 620
Auditor’s expert – An individual or organization
possessing expertise in a field other than accounting or
auditing, whose work in that field is used by the auditor
to assist the auditor in obtaining sufficient appropriate
audit evidence. An auditor’s expert may be either an
auditor’s internal expert (who is a partner or staff,
including temporary staff, of the auditor’s firm or a
network firm), or an auditor’s external expert.

Auditor’s expert – An individual or organization
possessing expertise in a field other than accounting or
auditing, whose work in that field is used by the auditor
to assist the auditor in obtaining sufficient appropriate
audit evidence. An auditor’s expert may be either an
auditor’s internal expert (who is a partner or staff,
including temporary staff, of the auditor’s firm or a
network firm), or an auditor’s external expert.

We can use the work of experts to do the following:
•The valuation of complex financial instruments, land and

buildings, plant and machinery, jewellery, works of art, intangible
assets, assets acquired and liabilities assumed in business
combinations and assets that may have been impaired.
• The actuarial calculation of liabilities associated with insurance
contracts or employee benefit plans.
• The estimation of oil and gas reserves.
• The valuation of environmental liabilities, and site clean-up
costs.
• The interpretation of contracts, laws and regulations.
• The analysis of complex or unusual tax compliance issues.
Assessing competence and objectivity of the expert
• Personal experience with previous work of that expert.
• Discussions with that expert.
• Discussions with other auditors or others who are
familiar with that expert’s work.
• Knowledge of that expert’s qualifications, membership
of a professional body or industry association, license to
practice, or other forms of external recognition.
• Published papers or books written by that expert.
• The auditor’s firm’s quality control policies and
procedures

Evaluating the work of an expert
Procedures to evaluate the adequacy of the auditor’s
expert’s work for the auditor’s purposes may include:
• Inquiries of the auditor’s expert.
• Reviewing the auditor’s expert’s working papers and
reports.
• Corroborative procedures, such as:
-Observing the auditor’s expert’s work;
-Examining published data, such as statistical
reports from reputable, authoritative sources;
-Confirming relevant matters with third parties;
-Performing detailed analytical procedures; and
-Reperforming calculations.
Related party transactions (ISA 550)
Documents that may provide information about related
parties include:
• Third-party confirmations
• Entity income tax returns.
• Information supplied to regulatory authorities.
• Shareholder registers to identify principal shareholders.
• Statements of conflicts of interest
• Records of investments and those of its pension plans.
• Contracts and agreements with key management
• Significant contracts and agreements not in the entity’s
ordinary course of business.

Subsequent events (ISA 560)
The objectives of the auditor under ISA 560 are:
(a) To obtain sufficient appropriate audit evidence
about whether subsequent events are appropriately
reflected in those financial statements in accordance
with the applicable financial reporting framework;
and
(b) To respond appropriately to facts that become
known to the auditor after the date of the auditor’s
report, that, had they been known to the auditor at
that date, may have caused the auditor to amend the
auditor’s report.
Subsequent events (ISA 560)
Enquiry about subsequent events:
•Whether new commitments, borrowings or guarantees
have been entered into.
• Whether sales or acquisitions of assets have occurred or
are planned.
• Whether there have been increases in capital or
issuance of debt instruments, such as the issue of new
shares or debentures, or an agreement to merge or
liquidate has been made or is planned.
• Whether any assets have been appropriated by
government or destroyed, for example, by fire or flood.
Read minutes
Going concern (ISA 570)
Going concern indicators (Financial):
• Net liability or net current liability position.

• Fixed-term borrowings approaching maturity without
realistic prospects of renewal ; or excessive reliance on
short-term borrowings to finance long-term assets.
• Indications of withdrawal of support by creditors.
•Negative operating cash flows
• Adverse key financial ratios.
• Substantial operating losses or significant deterioration in
the value of assets used to generate cash flows.
• Arrears or discontinuance of dividends.
• Inability to pay creditors on due dates.
Going concern (ISA 570)
Going concern indicators (Operating):
•Management intentions to liquidate the entity or to

cease operations.
• Loss of key management without replacement.
• Loss of a major market, key customer(s), franchise,
license, or principal supplier(s).
• Labour difficulties.
• Shortages of important supplies.
• Emergence of a highly successful competitor.

Forming an opinion on financial statements (ISA 700)
The auditor shall form an opinion on whether the financial
statements are prepared, in all material respects, in
framework.
The auditor shall express an unmodified opinion when the

auditor concludes that the financial statements are prepared,
in all material respects, in accordance with the applicable
financial reporting framework.

Forming an opinion on financial statements (ISA 700)
If the auditor:
(a) concludes that, based on the audit evidence obtained, the
financial statements as a whole are not free from material
misstatement; or
(b) is unable to obtain sufficient appropriate audit evidence to

conclude that the financial statements as a whole are free
from material misstatement, the auditor shall modify the
opinion in the auditor’s report in accordance with ISA 705.

The Auditor’s report
Title :The auditor’s report should have a title that clearly indicates that it
is the report of an independent auditor.
Addressee :The auditor’s report shall be addressed as required by the

circumstances of the engagement.
Introductory Paragraph
The introductory paragraph should:
(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement that comprises the financial
statements;
(d) Refer to the summary of significant accounting policies and other
explanatory information; and
(e) Specify the date or period covered by each financial statement
comprising the financial statements.
The Auditor’s report
• Management’s responsibility
•Auditor’s responsibility
•Auditor’s opinion
•Signature of the Auditor’s
•Date of the Auditor’s report
•Auditor’s address

Modifications to the audit opinion (ISA 705
This ISA establishes three types of modified opinions,
namely, a qualified opinion, an adverse opinion, and a
disclaimer of opinion. The decision regarding which type
of modified opinion is appropriate depends upon:
(a) The nature of the matter giving rise to the
modification, that is, whether the financial statements are
materially misstated or, in the case of an inability to
obtain sufficient appropriate audit evidence, may be
materially misstated; and
(b) The auditor’s judgment about the pervasiveness of the
effects or possible effects of the matter on the financial
statements.
The objective of the auditor is to express clearly an
appropriately modified opinion on the financial
statements that is necessary when:
(a) The auditor concludes, based on the audit
evidence obtained, that the financial statements as a
whole are not free from material misstatement; or
(b) The auditor is unable to obtain sufficient
appropriate audit evidence to conclude that the
financial statements as a whole are free from material
misstatement.

Pervasive – Pervasive effects on the financial
statements are those that, in the auditor’s
judgment:
(i) Are not confined to specific elements, accounts
or items of the financial statements
(ii) If so confined, represent or could represent a
substantial proportion of the financial statements.
(iii) In relation to disclosures, are fundamental to
users’ understanding of the financial statements.

Qualified Opinion
The auditor shall express a qualified opinion when:
(a) The auditor, having obtained sufficient appropriate
audit evidence, concludes that misstatements,
individually or in the aggregate, are material, but not
pervasive, to the financial statements; or
(b) The auditor is unable to obtain sufficient
appropriate audit evidence on which to base the
opinion, but the auditor concludes that the possible
effects on the financial statements of undetected
misstatements, if any, could be material but not
pervasive.
Adverse Opinion
The auditor shall express an adverse
opinion when the auditor, having
obtained sufficient appropriate audit
evidence, concludes that misstatements,
individually or in the aggregate, are both
material and pervasive to the financial
statements.
Disclaimer of Opinion
- The auditor shall disclaim an opinion when he is unable to
obtain sufficient appropriate audit evidence on which to base
the opinion and concludes that the possible effects on the
financial statements of undetected misstatements, if any,
could be both material and pervasive.
- The auditor shall disclaim an opinion when, in extremely rare
circumstances involving multiple uncertainties he concludes
that, notwithstanding having obtained sufficient appropriate
audit evidence regarding each of the individual uncertainties,
it is not possible to form an opinion on the financial
statements due to the potential interaction of the uncertainties
and their possible cumulative effect on the financial
statements. Presented by : Kudakwashe Ndlovu (CA)Z 182
Basis for Modification Paragraph
When the auditor modifies the opinion on the financial
statements, the auditor shall, in addition to the specific
elements required by ISA 700, include a paragraph in
the auditor’s report that provides a description of the
matter giving rise to the modification. The auditor shall
place this paragraph immediately before the opinion
paragraph in the auditor’s report and use the heading
“Basis for Qualified Opinion,” “Basis for Adverse
Opinion,” or “Basis for Disclaimer of Opinion,” as
appropriate.

Opinion Paragraph
When the auditor modifies the audit opinion,
the auditor shall use the heading “Qualified
Opinion,” “Adverse Opinion,” or “Disclaimer
of Opinion,” as appropriate, for the opinion
paragraph.

When the auditor expresses a qualified opinion due to a
material misstatement in the financial statements, the
auditor shall state in the opinion paragraph that, in the
auditor’s opinion, except for the effects of the matter(s)
described in the Basis for Qualified Opinion paragraph
The financial statements presents..........
When the modification arises from an inability to obtain

sufficient appropriate audit evidence, the auditor shall
use the corresponding phrase “except for the possible
effects of the matter(s) ...” for the modified opinion.
.
When the auditor expresses an adverse opinion, the
auditor shall state in the opinion paragraph that, in
the auditor’s opinion, “because of the significance of
the matter(s) described in the Basis for Adverse
Opinion paragraph the financial statements do not
present fairly (or give a true and fair view) in
framework when reporting in accordance with a fair
presentation framework

Modifications to the audit opinion (ISA 705)
When the auditor disclaims an opinion due to an
inability to obtain sufficient appropriate audit
evidence, the auditor shall state in the opinion
paragraph that:
(a) Because of the significance of the matter(s)
described in the Basis for Disclaimer of Opinion
paragraph, the auditor has not been able to obtain
sufficient appropriate audit evidence to provide a
basis for an audit opinion; and, accordingly,
(b) The auditor does not express an opinion on the
financial statements.
Description of Auditor’s Responsibility When the
Auditor Expresses a Qualified or Adverse Opinion
When the auditor expresses a qualified or adverse
opinion, the auditor shall amend the description of
the auditor’s responsibility to state that the auditor
believes that the audit evidence the auditor has
obtained is sufficient and appropriate to provide a
basis for the auditor’s modified audit opinion.

Description of Auditor’s Responsibility When the Auditor Disclaims
an Opinion
When the auditor disclaims an opinion due to an inability to
obtain sufficient appropriate audit evidence, the auditor shall
amend the introductory paragraph of the auditor’s report to state
that the auditor was engaged to audit the financial statements. The
auditor shall also amend the description of the auditor’s
responsibility and the description of the scope of the audit to state
only the following: “Our responsibility is to express an opinion on
the financial statements based on conducting the audit in
accordance with International Standards on Auditing. Because of
the matter(s) described in the Basis for Disclaimer of Opinion
paragraph, however, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion.”
Auditor’s Judgment about the Pervasiveness
of the Effects or Possible Effects on the
Financial Statements
Nature of Matter Material but Not Material and Pervasive

Giving Rise to the Pervasive
Modification
Financial statements Qualified opinion Adverse opinion

are materially
misstated
Inability to obtain Qualified opinion Disclaimer of opinion

sufficient appropriate
audit evidence

Emphasis of matter and other matter paragraph (ISA 706
Emphasis of Matter paragraph – A paragraph included in
the auditor’s report that refers to a matter appropriately
presented or disclosed in the financial statements that, in
the auditor’s judgment, is of such importance that it is
fundamental to users’ understanding of the financial
statements.
Other Matter paragraph – A paragraph included in the

auditor’s report that refers to a matter other than those
presented or disclosed in the financial statements that, in
the auditor’s judgment, is relevant to users’ understanding
of the audit, the auditor’s responsibilities or the auditor’s
report. Presented by : Kudakwashe Ndlovu (CA)Z 191
When the auditor includes an Emphasis of Matter
paragraph in the auditor’s report, the auditor shall:
(a) Include it immediately after the Opinion
paragraph in the auditor’s report;
(b) Use the heading “Emphasis of Matter,” or other
appropriate heading;
(c) Include in the paragraph a clear reference to the
matter being emphasized and to where relevant
disclosures that fully describe the matter can be
found in the financial statements; and
(d) Indicate that the auditor’s opinion is not modified
in respect of the matter
Presented emphasized.
by : Kudakwashe Ndlovu (CA)Z 192
Examples of circumstances where the auditor may
consider it necessary to include an Emphasis of Matter
paragraph are:
• An uncertainty relating to the future outcome of
exceptional litigation or regulatory action.
• Early application (where permitted) of a new
accounting standard (for example, a new International
Financial Reporting Standard) that has a pervasive effect
on the financial statements in advance of its effective
date.
• A major catastrophe that has had, or continues to have,
a significant effect on the entity’s financial position.
A widespread use of Emphasis of Matter paragraphs
diminishes the effectiveness of the auditor’s
communication of such matters. Additionally, to
include more information in an Emphasis of Matter
paragraph than is presented or disclosed in the
financial statements may imply that the matter has
not been appropriately presented or disclosed;
accordingly, the Emphasis of Matter paragraph
should be limited to matters presented or disclosed
in the financial statements.

Emphasis of Matter
We draw attention to Note X to the financial

statements which describes the uncertainty related to
the outcome of the lawsuit filed against the company
by XYZ Company. Our opinion is not qualified in
respect of this matter.

Emphasis of Matter
We draw attention to Note X to the financial

statements which describes the uncertainty related to
the outcome of the lawsuit filed against the company
by XYZ Company. Our opinion is not qualified in
respect of this matter.

Going concern - opinions
No material uncertainty
GC status Disclosure Opinion

Going concern Adequate Unqualified with
assumption no emphasis of
approprate (no matter
material Inadequate Qualified opinion
uncertainty exists or Disclaimer of
opinion

GC status Evidence Opinion
Going concern Auditor unable to obtain Disclaimer of opinion
assumption appropriate sufficient and appropriate
but material uncertainties audit evidence, but
exists (financial multiple material
statements adequately uncertainties exist
describe principal events
and conditions and state
Auditor able to obtain Unqualified opinion with
clearly that there is a
sufficient and appropriate emphasis of matter
material uncertainity)
audit evidence
Auditor unable to obtain Qualified opinion or

sufficient and appropriate disclaimer of opinion
audit evidence

GC status Effect Opinion

Going concern Material Qualified opinion
assumption appropriate
but material
uncertainties exists
(financial statements do
not describe principal
events and conditions Material and pervasive Adverse opinion
and state clearly that
there is a material
uncertainity)

GC status Opinion
Going concern Going concern Adverse opinion
assumption inappropriate assumption inappropriate
in the auditor’s judgement
and financial statements
are prepared on a going
concern basis
Financial statements Unqualified opinion with

prepared on a liquidation emphasis of matter (if
basis necessary)

ISA 450 – Evaluation of misstatements
The auditor shall communicate on a timely basis all
misstatements accumulated during the audit with
the appropriate level of management. The auditor
shall request management to correct those
misstatements.
If management refuses to correct some or all of the
misstatements communicated by the auditor, the
auditor shall obtain an understanding of
management’s reasons for not making the corrections
and shall take that understanding into account when
evaluating whether the financial statements as a whole
are free from material misstatement.
CORPORATE GOVERNACE (King III)
Corporate governance is the way is which a
company is managed or governed
King III is based on an apply or explain principle
Compliance with King III is not yet mandatory in

Zimbabwe but it just recommended practice.

KING III principles
Responsible leadership
The board should provide effective leadership based on
ethical foundation, (ethical leaders should :
- Do business ethically
- do not compromise the natural environment
- Take account of the company’s impact on the internal and
external stakeholders
- Direct the strategy and operations to build a sustainable
business
- Consider short term and long term impacts of the strategy
on the economy , society and environment
KING III principles
Role and function of the Board
The board should act as the focal point for and custodian for
corporate governance
The Board should :

-Have a charter setting out its responsibilities
- Meet at least 4 times
- Ensure that the company survives and thrives
- Monitor the relationship between management and the
stakeholders of the company

KING III principles
- The board should:
- - ensure that the company has an effective and
independent audit committee
- Ensure that the company complies with applicable laws
and regulation
- Act in the best interest of the company
- The Chairman of the Board should be an Independent

NED. The CEO of the company should not also fulfil the
role of chairman of the board

KING III principles
The Chairman of the Board should be an
Independent NED. The CEO of the company
should not also fulfil the role of chairman of the
board
A lead Independent director should be appointed in
the case where an executive chairman is appointed
or where the chairman is not independent or
conflicted
The CEO (after resigning) should not become the

Chairman until 3 years have elapsed
KING III principles
- The Chairman together with the
board should consider the number
of outside chairmanships held
The board should ensure a

succession plan for the role of the
Chairman and the CEO
KING III principles
Composition of the Board
The board should comprise a balance of
power with a majority of NEDs. The
majority of NEDs should be independent
Every board should have a minimum of two

executive directors of which one should be
the C.E.O and the other , the director
responsible for finance
KING III principles
The board should be permitted to remove any
director without shareholder approval
Directors should be appointed through a formal

process
A nominations committee should assist with the

process of identifying suitable members of the
Board
KING III principles
The board should be assisted by a competent, suitably qualified and
experienced company secretary
The company secretary should:

- Have an arms length relationship with the board
- Not be a director of the company
- Assist the nominations committee with the appointment of directors
Assist with the director induction and training programmes
Provide guidance to the board on the duties of the directors and good
governance
Ensure board and committee charters are kept up to date
Ensure preparation and circulation of minutes of board and committee
meeting
KING III principles
 Companies should remunerate directors and executives fairly
and responsibly
 Companies should adopt remuneration policies aligned with
the strategy of the company and linked to individual
performance.
 The remuneration committee should assist the board in setting
and administering remuneration policies.
 The remuneration policy should address base pay and bonuses,
employee contracts, severance and retirement benefits and
share-based and other long-term incentive schemes.
 Non-executive fees should comprise a base fee as well as an
attendance fee per meeting. (NEDs are not allowed to
participate in share options)
KING III principles
 Companies should disclose the remuneration of
each individual director and certain senior
executives
e.g benefits paid to directors;, material payments that

are ex-gratia in nature etc

KING III principles
 Shareholders should approve the company’s
remuneration policy

AUDIT COMMITTEE
 Audit committee members should be suitably skilled
and experienced independent non-executive directors
 All members of the audit committee should be

independent non-executive directors.
 The audit committee should consist of at least three
members.
 The chairman of the board should not be the
chairman or member of the audit committee.

AUDIT COMMITTEE
 An independent audit committee is a critical component in
ensuring
 the integrity of integrated reporting and financial
controls,
 the proper identification and management of financial
risks and
 the integrity of reporting practices.
 The audit committee is responsible for recommending the

appointment of the external auditor and overseeing the
external audit process.

Audit committee cont......
 The audit committee must define a policy addressing
the nature, extent and terms under which the external
auditor may perform non-audit services.

FUNCTIONS OF THE AUDIT
COMMITTEE
 An audit committee of a company has the following
duties:
 (a) To nominate, for appointment as auditor of the
company a registered auditor who, in the opinion of
the audit committee, is independent of the company;
 (b) to determine the fees to be paid to the auditor and
the auditor’s terms of engagement;
 (c) to ensure that the appointment of the auditor
complies with the provisions of this Act and any other
legislation relating to the appointment of auditors;
Functions cont......
 (d) to determine, subject to the provisions of this
Chapter, the nature and extent of any non-audit
services that the auditor may provide to the company,
or that the auditor must not provide to the company,
or a related company;
 (e) to pre-approve any proposed agreement with the
auditor for the provision of non audit services to the
company;

Functions cont....
 (f) to prepare a report, to be included in the annual
financial statements for that financial year-
 (i) describing how the audit committee carried out its
functions;
 (ii) stating whether the audit committee is satisfied
that the auditor was independent of the company; and
 (iii) commenting in any way the committee considers
appropriate on the financial statements, the
accounting practices and the internal financial control
of the company;
Functions cont.....
 (g) to receive and deal appropriately with any concerns
or complaints, whether from
 within or outside the company, or on its own initiative,
relating to-
 (i) the accounting practices and internal audit of the
company;
 (ii) the content or auditing of the company’s financial
statements;
 (iii) the internal financial controls of the company; or
 (iv) any related matter;
IT GOVERNANCE (Ch 5 King III)

IT Governance - Example
Music4U (Pty) Ltd is a company offering its clients on-line
music download facilities. Customers can purchase their
favourite songs by means of SMS downloads. Customers
are required to register on-line by supplying certain
personal details such as name, surname, ID number,
address etc.
John Daily was recently appointed as the Chief
Information Officer (CIO). John is a registered internal
auditor and has no IT governance experience. He however
indicated to management that he is willing to learn. Due
to financial constraints, the financial manager appointed
John based purely on the fact that a lower salary could be
paid to John.
Apart from other tasks, John was also given the sole
responsibility for the management and protection of all
customer personal information. During the year customer
details where sold to a cell-phone provider by John. John
explained that he was not aware that it was private
information. Presented by : Kudakwashe Ndlovu (CA)Z 222
REQUIRED:
Identify and discuss any governance of information

technology concerns that you may have.

IT GOVERNANCE - Example
How do you approach a question such as this?
 Firstly identify the concerns. For this you need to

know the theory to be able to identify things that are
not done correctly.
 Secondly discuss why you are concerned with
something by giving the principle (theory) from
chapter 5.
 Conclude.
 Do not discuss things that are done correctly if you
are required to give concerns. (you waste time by
doing this) Presented by : Kudakwashe Ndlovu (CA)Z 224
CONCERN 1
 John, the recently appointed CIO, is a registered
internal auditor and has no IT governance
experience = CONCERN
 As per Principle 5.3 par 21 of King III, the CIO
should be a suitably qualified and experienced
person = PRINCIPLE
 John is not suitably qualified as he is a registered
internal auditor and he does not have the required
IT governance experience = APPLICATION &
CONCLUSION
CONCERN 2:
 The financial manager appointed John as the CIO =

CONCERN
 As per Principle 5.3 par 20 of King III, the CEO
(Chief Executive Officer) should appoint the CIO =
PRINCIPLE
 John was thus not correctly appointed as he was
appointed by the financial manager and not the
CEO = APLLICATION & CONCLUSION

THE STRUCTURE OF THE
ACCOUNTANCY PROFESSION
 Public Accountants and Auditors Board (PAAB) heads
the profession
 There is also the Zimbabwe Accounting Practices Board
(ZAPB) which sets accounting standards. A technical
committee of PAAB

ZAPB
 The Zimbabwe Accounting Practices Board was
established in the 1970s as a means for interested bodies
to participate in the setting of accounting standards by
the Institute of registered auditors. It received statutory
recognition in 1993 when amendments to the
Companies Act made it a requirement for the Minister of
Justice Legal and Parliamentary Affairs to have regard to
the international accounting standards adopted by the
Board when making regulations about the content of
company accounts.
 Reference: Sections 142(2) and 360(2) of the Companies
Act (Cap: 24:03)
ZAPB
 Membership of the Board currently includes all member
bodies of the PAAB plus the Zimbabwe Stock Exchange,
the Chamber of Mines, the Zimbabwe National
Chamber of Commerce, the Confederation of Zimbabwe
Industries and other interested bodies. The Board may
alter its membership as it thinks best and has recently,
for example, invited the Institute of Directors to join.

THE STRUCTURE OF THE A
Ethical Codes & Rules of

Professional Conduct
Legal
requirements Audit objectives
Audit standards
and theory
Audit
assumptions

THE STRUCTURE OF THE
ACCOUNTANCY PROFESSION
 The Zimbabwe Public Accountants and Auditors Board
is a statutory body which was established in 1996 under
the Public Accounts and Auditors Act (Cap: 27:12).

THE PAAB
In Zimbabwe, the PAAB is made up of representatives from five
professional accountancy bodies –
 The Institute of registered auditors of Zimbabwe, established under
the registered auditors Act (Cap: 27:02) in 1918
 The Institute of Chartered Secretaries and Administrators of
Zimbabwe established under the Chartered Secretaries (Private) Act
(Cap: 27:03)
 Zimbabwe Institute of Certified Public Accountants of Zimbabwe
(CPA)
 The Zimbabwe branch of Chartered Institute of Management
Accountants (CIMA) incorporated by Royal Charter in the UK
 The Zimbabwe branch of Association of Chartered Certified
Accountants (ACCA) incorporated by Royal Charter in the UK

THE PAAB
 The Board’s primary function is to register qualified
accountants and auditors and to provide assurance to the
public and employers regarding the quality of accountancy
services.
 Members of the profession are registered as either Registered
Public Accountants or as Registered Public Auditors. Neither
category may practice (provide services directly to the public)
without a Practising Certificate issued by the Board.

THE PAAB
 In addition to the five professional bodies that are
constituent members of the PAAB,
 there accountancy bodies also exist for non-professional
accountants. The best known are the:
- Zimbabwe Association of Accounting Technicians and
- The Institute of Administration and Commerce and various
associations of book-keepers.

THE PAAB
 Because the PAAB only registers members of constituent
bodies, members of foreign professional bodies must join a
local professional body (and constituent member of the
Board) before they can register as public accountants or
auditors.
 It is an offence under the PAAB Act for an unregistered
person to hold himself out to be a public auditor or public
accountant and an offence under the Companies Act and the
Acts establishing many public bodies tocarry out an audit
without being registered with the Board as a Registered
Public Auditor.
 Note however that while the Act defines auditing it does not
define accounting. A foreign accountant may therefore work
or provide accounting services in Zimbabwe without
registering.

Auditing Lecture Slides - ACC 410

Transféré par

Informations du document

Description originale:

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Auditing Lecture Slides - ACC 410

Transféré par

Droits d'auteur :

Formats disponibles

Presented by : Kudakwashe Ndlovu (CA)Z 1

Presented by : Kudakwashe Ndlovu (CA)Z 3

Presented by : Kudakwashe Ndlovu (CA)Z 4

The audit of the financial statements does not relieve

Presented by : Kudakwashe Ndlovu (CA)Z 8

Presented by : Kudakwashe Ndlovu (CA)Z 9

Presented by : Kudakwashe Ndlovu (CA)Z 10

Presented by : Kudakwashe Ndlovu (CA)Z 11

Presented by : Kudakwashe Ndlovu (CA)Z 14

Presented by : Kudakwashe Ndlovu (CA)Z 16

Presented by : Kudakwashe Ndlovu (CA)Z 17

Presented by : Kudakwashe Ndlovu (CA)Z 18

Presented by : Kudakwashe Ndlovu (CA)Z 19

Presented by : Kudakwashe Ndlovu (CA)Z 20

Presented by : Kudakwashe Ndlovu (CA)Z 21

Presented by : Kudakwashe Ndlovu (CA)Z 23

Presented by : Kudakwashe Ndlovu (CA)Z 24

IESBA, SAICA CPC

Presented by : Kudakwashe Ndlovu (CA)Z 25

An auditor shall not knowingly be associated with

Objectivity – not to allow bias, conflict of

Presented by : Kudakwashe Ndlovu (CA)Z 27

Presented by : Kudakwashe Ndlovu (CA)Z 28

Confidentiality – to respect the confidentiality

Presented by : Kudakwashe Ndlovu (CA)Z 29

The following are circumstances where an auditor

• disclosure is permitted by law and is authorised

Auditors shall be honest and truthful in

Examples of circumstances that create self-interest

Eg A member of the assurance team being, or

e.g. The firm promoting shares in an audit

Presented by : Kudakwashe Ndlovu (CA)Z 34

E.g A member of the engagement team having a

E.g A firm being threatened with dismissal from a

Presented by : Kudakwashe Ndlovu (CA)Z 36

• Leadership that stresses the importance of

Presented by : Kudakwashe Ndlovu (CA)Z 38

However, an employee of another registered auditor who, in

Presented by : Kudakwashe Ndlovu (CA)Z 39

Nevertheless, there may be threats to compliance with the

For example, a self-interest threat to professional competence

Wef 1 March 2014. SAICA no longer allows any of its member

Presented by : Kudakwashe Ndlovu (CA)Z 41

Presented by : Kudakwashe Ndlovu (CA)Z 43

In such situations, the registered auditor shall not accept or

Presented by : Kudakwashe Ndlovu (CA)Z 45

Renda Manyika CA(Z) is a registered auditor and conducts the

On scrutiny of correspondence from his past dealings with Robben

• Professional Competence and Due Care - Section 130. As the

Integrity - Section 110

The only safeguard to prevent this would be to report Arjen

The fraudulent tax returns submitted to ZIMRA. Renda should:

Presented by : Kudakwashe Ndlovu (CA)Z 52

Presented by : Kudakwashe Ndlovu (CA)Z 53

3. Obtain audit evidence

4. Evaluate, conclude and report

Presented by : Kudakwashe Ndlovu (CA)Z 54

2. Determination of skills, competence &

3. Set engagement terms (engagement

Presented by : Kudakwashe Ndlovu (CA)Z 56

Presented by : Kudakwashe Ndlovu (CA)Z 57

Presented by : Kudakwashe Ndlovu (CA)Z 58

Presented by : Kudakwashe Ndlovu (CA)Z 59