ADVANCED AUDITING AND PROFESSIONAL ETHICS

CA FINAL - PAPER 3 - ADVANCED AUDITING AND PROFESSIONAL ETHICS

It has always been the endeavour of Board of Studies to provide quality academic inputs to the students of Chartered Accountancy
Course. Keeping in mind this objective, BoS has decided to come out with a crisp & concise Capsule of each subject to facilitate
students in quick revision before examination.
This series of capsules is on Paper 3: Advanced Auditing & Professional Ethics of Final Course. In this capsule we are covering
Engagement and Quality Control Standards i.e. SA 300, 500 and 600 series (refer March 2019 edition for SA 540 and SA 600). It
may be mentioned that this capsule is a tool for quick revision of some significant areas of Auditing subject, but this should not
be taken as a substitute for the detailed study of the subject. Students are advised to refer to the relevant Study Material, Auditing
Pronouncements and RTP for comprehensive study & revision.

SA 300 - 499: Risk Assessment and Response to Assessed Risks

SA 300

" Planning an Audit of

Financial Statements"

Scope of Objective of Involvement of Preliminary Other Important

Planning
the SA the Auditor Key Engagement Engagement points to be
Activities
Team Members Activities considered

This SA deals The engagement The auditor shall undertake Documentation:

with the auditor’s partner & other the following activities at the The auditor shall
responsibility to key members of the beginning of the current audit document:
plan an audit engagement team engagement: 1. The overall audit
of financial shall be involved in 1. Performing procedures strategy.
statements. This planning the audit, required by SA 220. 2. The audit plan and
SA is framed in including planning 2. Evaluating compliance 3. Any significant changes
& participating made to the strategy
the context of with ethical requirements,
or the audit plan along
recurring audits. in the discussion including independence, as with the reasons.
among engagement required by SA 220.
team members. 3. Establishing an understanding
of the terms of engagement, as
required by SA 210. Additional
Considerations in Initial
Audit Engagements:
The objective of the Prior to starting an audit,
auditor is to plan the 1. The auditor shall establish an overall audit strategy that sets the auditor shall:
audit so that it will the scope, timing and direction of the audit and that guides the 1. Perform procedures
be performed in an development of the audit plan. required by SA
2. In establishing the overall audit strategy, the auditor shall: 220 regarding the
effective manner. acceptance of the
a) Identify characteristics of the engagement that defines its
client relationship
scope.
and the specific audit
b) Ascertain the reporting objectives. engagement.
c) Conisder the factors significant in directing engagement team's 2. Communicate with the
efforts. predecessor auditor.
d) Consider the results of preliminary engagement activities.
e) Ascertain the resources necessary to perform the engagement.
3. The auditor shall develop an audit plan including description of:
a) The planned risk assessment procedures, as per SA 315.
b) The planned further audit procedures at the assertion level as
per SA 330.
c) Other planned audit procedures.
4. The auditor shall update/ change overall audit startegy or plan as
necessary.
5. The auditor shall direct & supervise the engagement team and
review their work.

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SA 315

" Identifying and Assessing the Risk of

Material Misstatement through understanding
the Entity and its Environment"

Scope of Objective of Risk Assessment Understanding Identifying & Other important

the SA the Auditor procedures and the Entity and its Assessing the points to be
related activities Environment including ROMM considered
Internal Control

This SA deals A) Risk Assessment Significant Risks:

with the auditor’s Procedures include the The auditor shall obtain an
Entity & its Environment: understanding of the entity's
responsibility following: The auditor shall obtain an
1. Inquiries of management control and control activities
to identify and understanding of: relevant to the significant risk.
assess the risks and of others within the
entity.
a) Relevant industry, regulatory
of material & other external factors.
2. Analytical procedures.
misstatement 3. Observation and b) The nature of the entity.
(ROMM) in c) The accounting policies Risks for which Substantive
Inspection.
the financial including reasons for changes. Procedures alone do
statements, not provide sufficient
d) Entity's Objectives & appropriate audit evidence:
t h r o u g h Strategies. In such case the auditor shall
understanding B) The auditor shall e) Measurement & review of obtain an understanding of
the entity and consider whether the entity's financial performance. entity's controls over such
its environment, information obtained from risks.
including the auditor's client acceptance
entity's internal or continuance process or
control. Entity's Internal Control: The
information from other
auditor shall evaluate the design Revision of Risk Assessment:
engagement or previous
of the controls to determine The auditor's assessment of
audits is relevant in
whether they have been ROMM at the assertion level
identifying the ROMM. may change during the course
implemented.
of audit as additional audit
The auditor shall obtain evidence is obtained. In such
understanding of : case, the auditor shall revise
C) The audit team to 1. the control environment. and the assessment and modify
discuss the susceptibility entity's risk assessment process. the further planned audit
of the entity's financial 2. the information system and procedures accordingly.
statements to material entiy's communication process.
misstatement and the 3. the control activities relevant to
the audit and the major activities
application of the
used by entity to monitor internal Documentation:
applicable FRF to control over financial reporting. Auditor shall document:
the entity's facts and 4. the internal audit function and 1. The discussion among the
circumstances. sources of information used in engagement team.
entity's monitoring activities. 2. Key elements of the
understanding obtained.
To identify and assess 3. Identified & Assessed
the ROMM, whether due ROMM.
to fraud or error at the 4. The risks identified and the
financial statement and related controls.
assertion levels, through The auditor shall identify and assess ROMM at:
understanding the entity & • financial statement level &
its environment, including • assertion level for classes of transactions and account balances.
the entity's internal control,
The auditor shall:
therby providing a basis for 1. Identify risks throughout the process of obtaining understanding of
designing and implementing the entity.
the responses to the assessed 2. Assess the identified risk and evaluate whether they have pervasive
ROMM. effect.
3. Relate the identified assertions to what can go wrong at the
assertion level.
4. Consider the likelihood of the misstatement and its magnitude.

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ADVANCED AUDITING AND PROFESSIONAL ETHICS

SA 320

"Materiality in Planning and Performing an Audit"

Scope of the SA Determining Materiality & Use of Benchmarks Other important

& Objective of Performance Materiality points
the Auditor

Scope 1. Determining materiality

1. The auditor shall determine the materiality for the
This SA deals involves exercise of
financial statements as a whole.
with the auditor's professional judgement.
responsibility to
apply the concept
of materiality
in planning & 2. If there is one or more particular classes of 2. A percentage is often applied
performing an transactions, account balances or disclosures for to a chosen benchmark as a
audit of financial which misstatements of lesser amounts than the starting point in determining
statements. materiality for the financial statements as a whole materiality for the financial
could reasonably be expected to influence the statements as a whole.
economic decisions of users taken on the basis of the
financial statements, the auditor shall also determine
Objective the materiality level or levels to be applied to those
particular classes of transactions, account balances 3. Examples of benchmarks:
To apply the a) Profit before tax
concept of or disclosures.
b) total revenue
materiality c) gross profit
appropriately d) total expenses etc.
in planning and
performing an 3. The auditor shall determine performance materiality
audit. for purposes of assessing the ROMM and
dertermining the nature, timimg & extent of further
audit procedures.

Revision as the Audit progresses:

1. Materiality for the financial statements as a whole
may need to be revised as a result of a change in
circumstances that occurred during the audit, new
information, or a change in the auditor’s understanding
of the entity and its operations as a result of performing
further audit procedures.
Definition
2. If the auditor concludes that a lower materiality for
Performance materiality means the the financial statements as a whole than that initially
amount or amounts set by the auditor determined is appropriate, the auditor shall determine
at less than materailty for the financial whether it is necessary to revise performance
statements as a whole to reduce to an materiality, and whether the nature, timing and extent
appropriately low level the probability of the further audit procedures remain appropriate.
that the aggregate of uncorrected and
undetected misstatements exceeds
materiality for the financial statements
as a whole. Documentation of:
1. Materiality for the financial statements as a whole.
2. The materiality level or levels for particular classes of
transactions, account balances or disclosures.
3. Performance materiality.
4. Any revision as the audit progressed.

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SA 330

"The Auditor's Responses to Assessed Risks"

Scope of the SA Requirements Test of Substantive Other important

& Objective of of SA controls procedures points
the Auditor

Scope Overall Responses: The A) The auditor shall design 1. Irrespective of the assessed
This SA deals auditor shall design & & perform test of controls ROMM, auditor shall
with the auditor’s implement overall responses when: perform substantive
responsibility to address the assessed 1. the auditor expects that procedures.
to design and ROMM at the financial the controls are operating 2. Auditor shall consider
implement statement level. effectively or whether external
responses to 2. Substantive procedures confirmation are to be
ROMM identified alone cannot provide performed as Substantive
& assessed by sufficient appropriate audit audit procedures.
the auditor in Audit Procedures for evidence at the assertion 3. Auditor shall perform
accordance Assessed ROMM at level. substantive procedures
with SA 315 Assertion Level: related to financial
B) The auditor shall perform
in a financial The auditor shall design statement closing process
other audit procedures along
statement audit. & perform further audit and those responsive to
with inquiry & determine
procedures whose nature, significant risks.
whether the controls to be
timing & extent are based 4. When substantive
tested depend upon indirect
on & are responsive to the procedures are performed
controls.
Objective assessed ROMM at the at an interim date, the
assertion level. C) The auditor shall test auditor shall cover the
To obtain
controls for a particular time remianing period also.
sufficient &
or throughout the period. 5. If misstatements that the
appropriate audit
evidence about D) The auditor may use audit auditor did not expect
In designing Further Audit
the assessed evidence obtained in previous when assessing ROMM
Procedures, the auditor
ROMM, through audits after considering are detected at an interim
shall:
designing & continuing relevance. date, the auditor shall
a) Consider the reasons
implementing for the assessment given E) The auditor shall test the evaluate whether the
appropriate to the ROMM at the controls for significant risk in related assessment of risk
responses to assertion level for each current period. & planned substantive
those risks. class of transactions, procedures covering the
F) When deviations from
account balance and remaining period need to be
controls are detected, the
disclosure. modified.
auditor shall make specific
b) Obtain more persuasive inquires to understand these
audit evidence because matters & their potential
of a higher assessment of consequences.
risk.

Definition
Substantive Procedure: 1. The auditor shall perform audit procedures to evaluate
An audit procedure designed to detect material the adequacy of presentation & disclosures made in the
misstatements at the assertion level. It comprises of: financial statements.
1. Test of details (of classes of transactions, account 2. The auditor shall evaluate the sufficiency &
balances, & disclosures), & appropriateness of audit evidence.
2. Substantive analytical procedures. 3. The auditor shall document:
a) the overall responses and the nature , timing, extent
of further audit procedures performed.
Test of Controls:
b) the linkage of those procedures with assessed risks
An audit procedure designed to evaluate operating at the assertion level.
effectiveness of controls in preventing, or detecting and c) the results of audit procedures.
correcting, material misstatements at the assertion level.

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SA 402

"Audit Considerations Relating to an Entity Using a Service Organisation"

Scope of Objective of the Types of Reports & their Requirements Reporting by the
the SA Auditor use by user auditor of the SA user auditor

This SA deals The objective of the user A) Type 1 Report The auditor shall obtain
with the auditor’s auditor, when the user entity Report on the description & an understandng of the
responsibility to uses the services of service design of controls at a service services provided by a
obtain sufficient organisation are: organisation. service organisation,
appropriate audit including internal control
evidence when a B) Type 2 Report that relate to the services
user entity uses Report on the description, provided by the service
the services of one To obtain an understanding design & operating orgainsation.
or more service of the nature & significance effectiveness of controls at a
organisations. of the service provided by the service organisation.
service organisation & their C) In determining the
effect on the user entity's sufficiency & appropriateness If the auditor is unable
internal control, sufficient of audit evidence provided by to obatin sufficient
to identify & assess the Type 1 & Type 2 report, the understanding from the user
ROMM. user auditor shall be satisfied entity, the user auditor shall
as to: obtain that understanding
(i) The service auditor's by:
professional competence. a) Obtaining Type1 or
To design & perform audit (ii) The adequacy of standards Type 2 report.
procedures responsive to under which the Type 1 or b) Contacting service
those risks. Type 2 report was issued. organisation through
D) When the user auditor user entity.
plans to use Type 2 report c) Visiting the service
as audit evidence, the user organisation &
auditor shall determine performing procedures.
whether the service auditor's d) Using another auditor to
report provides sufficient & perform the procedures.
appropriate audit evidence
about the effectiveness of the
Definition controls to support theuser
auditor's risk assessment.
Service auditor: An auditor who, at
the request of the service organisation,
provides an assurance report on the
controls of a service organisation.
Service Organisation: A third party
1. If the user auditor is unable to obtain sufficient
organisation that provides services
appropriate audit evidence regarding the services
to user entities that are part of those
provided by the service organisation, the user auditor
entities' information system relevant
shall modify his audit opinion.
to financial reporting.
2. The user auditor shall not refer to the work of the
User Auditor: An auditor who audits service auditor in the user's auditor report containing
& reports on the financial statements unmodified opinion.
of a user entity. 3. If user auditor makes reference of the work of the
User Entity: An entity that uses service auditor in user auditor's report with modified
a service organisation and whose opinion, the user's auditor report shall also indicate
financial statements are being that such reference does not diminish the user auditor's
audited. responsibility for that opinion.

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SA 450

"Evaluation of Misstatements Identified during the Audit"

Scope of Objective of the Requirements Evaluating the effect of Other important

the SA Auditor of the SA Uncorrected misstatements points to be
considered

This SA deals The objective of the Auditor 1. The auditor shall accumulate The auditor shall first
with the auditor’s is to evaluate: misstatements identified during reassess the materiality
responsibility audit other than those clearly determined in accordance
to evaluate the trivial. with SA 320.
effect of identified 2. The auditor shall determine
misstatements whether the overall audit
on the audit and 1. The effect of identified strategy or audit plan need to
of uncorrected The auditor shall
misstatements on audit be revised.
misstatement s , determine whether
and 3. If at auditor's request,
if any, on u n c o r r e c t e d
the financial management has examined misstatements are
statements. or corrected any misstatement material, individually or in
that was detected, the auditor aggregate by considering:
2. The effect of uncorrected shall perform additional
misstatement, if any, on a) The size & nature of
audit procedure to determine misstatements.
the financial statements. whether misstatement remains.
b) The effect of
4. The auditor shall communicate u n c o r r e c t e d
all accumulated misstatements misstatements of prior
on timely basis at appropriate periods.
level of management with a
request to correct them.
5. If management refuses to
correct them, auditor shall
consider managment's
reasons for refusal and shall
evaluate whether the financial
statements as a whole are free
from material misstatement.
Definition
Misstatement: A difference
Communication with TCWG:
between the amounts,
The auditor shall communicate with TCWG
classification, presentation or
a) uncorrected misstatements & their effects and request that
disclosure of a reported financial
uncorrected misstatements be corrected.
statement item and the amount,
b) the effect of uncorrected misstatements related to prior periods.
classification, presentation or
disclosure that is required for the
item to be in accordance with the
applicable FRF. Written Representation:
The auditor shall request a written representation from managment/
Misstatements can arise from
TCWG whether they believe the effects of uncorrected misstatements
error or fraud.
are immaterial, individually or in aggregate, to the financial statements
as a whole.
Uncorrected Misstatements:
Misstatements that the auditor has
accumulated during the audit and
Documentation:
that have not been corrected.
1. The amount below which misstatements would be regarded as
clearly trivial.
2. All misstatements accumulated during the audit & whether they
have been corrected.
3. The auditor's conclusion as to whether the uncorrected
misstatements are material and the basis of that conclusion.

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SA 500 - 599: Audit Evidence

SA 500 - "Audit Evidence"

Scope of Objective of Information to be used Audit procedures to Inconsistency in or

the SA the auditor as audit evidence obtain audit evidence doubts over reliability
of audit evidence

This SA deals with the To design and The auditor shall consider the relevance Audit evidence to
auditor's responsibility perform audit and reliability of the information to be draw reasonable The auditor shall
to design and perform procedures in used as audit evidence. conclusions on determine what
audit procedures to obtain such a way as to which to base the modifications
sufficient and appropriate enable the auditor When information from management auditor's opinion or additions to
audit evidence to be to obtain sufficient expert is used, the auditor shall is obtained by audit procedures
able to draw reasonable appropriate audit evaluate the competence, objectivity performing: are necessary
conclusions on which to evidence to be able of the expert, appropriateness of the 1. R i s k to resolve the
expert's work. Assessment matter and
base the auditor's opinion. to draw reasonable
conclusions on procedures shall consider
This SA is applicable to When using information produced by
which to base 2. Further audit the effect of the
all the audit evidence the entity, the auditor shall evaluate
auditor's opinion. procedures matter, if any, on
obtained during the the reliability, completeness, accuracy
comprising of : other aspects of
course of audit. of the information.
Test of the audit.
controls and
Definition Substantive
procedures
Audit Evidence: Information used by the auditor in arriving at the conclusions on which
the auditor's opinion is based. It includes both information contained in the accounting
records underlying the financial statements and other information.
Appropriateness: It is the measure of quality of audit evidence.
Sufficieny: It is the measure of quantity of audit evidence.

SA 501 - "Audit Evidence- Specific Considerations for Selected Items"

Scope of Objective of Inventory Litigations & Segment

the SA the auditor Claims Information

This SA deals with specific a) If inventory is material, obtain evidence a) Auditor to perform audit Auditor to obtain
considerations by the for existence and condition of inventory procedures to identify audit evidence
auditor in obtaining by: litigation and claims by: reg ard i ng
sufficient appropriate audit 1.Attendance at physical inventory 1.Inquiry of management. presentation
evidence with respect counting. 2.Reviewing minutes of and disclosure
to inventory, litigation 2.Performing audit procedures over the meetings. of segment
and claims and segment entity's final inventory records. information in
3.Reviewing legal expense
information in an audit of b) If inventory counting conducted at date accordance with
accounts.
other than the date of financial statements, applicable FRF
financial statements.
perform additional procedures with b) If auditor assesses risk of
by:
respect to inventory between count date material misstatement, seek
and date of financial statements. direct communication with 1. Understanding
c) If auditor is unable to attend the physical entity's external legal counsel. the methods
To obtain sufficient and
inventory counting due to unforeseen used by the
appropriate audit evidence c) If auditor is unable to
circumstances, auditor to make/ observe management
regarding: communicate with the
some physical count on alternate date and in determining
1. Existence and condition external legal counsel, modify s e g m e n t
perform audit procedures on intervening
of inventory transactions. the opinion as per SA 705. information
2. Completness of litigation d) If attendance at inventory count is d) Obtain Written 2. P e r f o r m i n g
and claims involving the impracticable, auditor to perform Representation that all analytical
entity. alternate procedures. If it is not possible known actual or possible procedures.
3. Presentation and to do so, modify the opinion. litigation and claims have
disclosure of segment e) When inventory is under custody of third been disclosed to the auditor
information in accordance party, request confirmation from third and appropriately accounted
with applicable FRF. party and perform inspection and other for as per applicable FRF.
procedures.

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SA 505 - "External Confirmations" Refer page 17 for definition

Management's refusal to Results of the External

Scope of the SA External Confirmation procedures
allow the auditor to send
& Objective of Confirmation
a confirmation request
the auditor Procedures
A) Reliability of responses to confirmation requests:
If auditor has doubt about reliability of response,
Scope 1. D e t e r m i n i n g 1. Inquire as to management’s
auditor to obtain further audit evidence. If auditor
This SA deals the information reasons for the refusal, and determines response is not reliable, auditor to evaluate
with auditor's to be seek audit evidence as to their the implications on the assessment of risk of material
use of external confirmed/ validity and reasonableness misstatement.
confirmation requested. 2. Evaluate the implications B) Non Response: Auditor shall perform alternative
procedures to 2. Selecting the of management’s refusal on audit procedures.
obtain audit appropriate the auditor’s assessment of C) When a response to positive confirmation is
evidence. confirming the relevant risks of material necessary and the same is not received: Determine
party. misstatement, including the implications on the audit and the auditors opinion.
the risk of fraud, and on the D) Exception: Auditor shall investigate exceptions
3. Designing the
Objective nature, timing and extent of to determine whether or not they are indicative of
conf ir mation
To design other audit procedures; and misstatement.
requests.
and perform 3. Perform alternative audit E) Negative Confirmation: Auditor to use negative
4. Sending the
e x t e r n a l procedures designed to confirmation as sole substantive audit procedure when:
requests,
confirmation obtain relevant and reliable 1. Assessed Risk of Material misstatement is low and
including
procedures to audit evidence. relevant controls are effective.
follow-up
obtain relevant 2. The population comprise of large number of small,
requests. If management's refusal
and reliable homogeneous transactions.
audit evidence. is unreasonable, then
communicate with TCWG and 3. A very low exception rate is expected.
consider the implications on 4.The auditor is not aware of circumstances that would
audit and auditor's opinion. cause recipients of negative confirmation requests to
disregard such requests.

SA 510 - "Initial Audit Engagements- Opening Balances" Refer page 18 for definition

Scope of the SA Audit Procedures Audit Conclusion

This SA deals with and reporting
auditor's responsibilities
relating to opening
balances when Opening Balances: Consistency Relevant Opening Balances:
conducting an initial The auditor shall: of Accounting Information
1. If auditor is unable to obtain
audit engagement. 1. Read the most recent Policies: in the
audit evidence regarding opening
financial statements Obtain audit Predecessor's
balances- Qualified/ disclaimer of
and predecessor's evidence as to Auditor's
Objective of the opinion.
auditor's report. whether the Report :
auditor 2.If auditor concludes opening
2. Determine whether accounting I f
To obtain sufficient balances contain misstatement,
prior period's policies are modification
appropriate audit not properly presented/ disclosed-
evidence about: closing balance consistently in predecessor
Qualified/ Adverse Opinion.
has been correctly applied and auditor's
1. Whether opening
brought forward. in case of r e p o r t ,
balances contain Consistency of Accounting
misstatements 3. Determine whether any changes, evaluate the
the opening balances w h e t h e r effect of the Policies:
that materially
affect the current reflect appropriate p r o p e r l y matter giving If auditor concludes that accounting
period's financial accounting policies. accounted for, rise to such policies are not consistently applied
statements. 4. Perform audit presented and modification in relation to opening balances or
2. W h e t h e r procedures on disclosed. with respect changes are not properly accounted
appropriate opening balances. to current for- Qualified/ Adverse Opinion.
accounting 5. If current period period's
policies are financial statements financial Modification to the opinion in the
consistently are misstated due statements. predecessor's auditor's report:
applied and any to misstatement in
opening balances, If the modification is relevant and
change thereto
communicate with material to the current period's
has been properly
management or financial statements, auditor shall
accounted for,
presented and TCWG. modify the current period audit
disclosed. report.

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SA 520

"Analytical Procedures"

Scope of the SA & Substantive Analytical procedures that Investigating results of

Objective of the auditor Analytical Procedures assist when forming an analytical procedures
overall conclusion
Scope While designing and If auditor finds fluctuations
This SA deals with auditor's use of performing substantive The auditor shall design or relationship that are
analytical procedures as substantive analytical procedures, and perform analytical inconsistent with other
procedures and as procedures near the auditor shall: procedures near the end relevant information
the end of audit that assist the auditor 1. Determine suitability of of the audit that assist the auditor shall investigate
when forming an overall conclusion analytical procedure for auditor when forming such differences by:
on the financial statements. given assertions. an overall conclusion as 1. Inquiring of management
2. Evaluate reliability of to whether the financial and obtaining appropriate
Data. statements are consistent audit evidence relevant to
Objective with the auditor's management's responses
3. Develop an expectation
1. To obtain relevant & reliable audit of recorded amounts. understanding of the entity. and
evidence when using substantive 2. Performing other audit
4. Determine the amount
analytical procedures. procedures as necessary
of acceptable difference.
2. To design and perform analytical in the circumstances.
procedures near the end of audit.

Definition
Analytical Procedures means evaluations of financial information through
analysis of plausible relationships among both financial and non-financial data.
Analytical procedures also encompass such investigation as is necessary of
identified fluctuations or relationships that are inconsistent with other relevant
information or that differ from expected values by a significant amount.

SA 530

"Audit Sampling"

Scope of the SA & Sample design, size and Performing Other points of
Objective of the auditor selection of items for testing Audit Procedures consideration

Scope 1. While designing audit 1. The auditor shall perform 1. The auditor shall investigate
This SA applies when the sample, the auditor shall appropriate audit the nature and cause of
auditor has decided to use consider the purpose of procedure on each item deviation or misstatement
audit sampling in performing the audit procedure and selected. identified and evaluate its
audit procedures. It deals the characteristics of the 2. If audit procedure is not possible effect.
with auditor's use of statistical population. applicable on the selelcted 2. When a deviation/
and non statistical sampling. 2. The auditor shall determine item, apply the procedure misstatement is considered
sample size sufficient to on a replacement item. as anomaly, the auditor shall
reduce sampling risk to an 3. If the auditor is unable to perform audit procedures to
Objective acceptably low level. apply the designed audit obtain high degree of certainty
To provide a reasonable 3. The auditor shall select procedure to a selected that it is not representative of
basis for the auditor to items for the sample such item, treat that item as the population.
draw conclusions about the that each sampling unit in a deviation from the 3. For test of details, the auditor
population from which the the population has a chance prescribed control, in case shall project misstatements
sample is selected. of selection. of tests of controls, or a found in the sample to the
misstatement, in the case population.
of tests of details. 4. The auditor shall evaluate
Definition the results of the sample
Audit Sampling: and whether the use
of audit sampling has
The application of audit procedures to less than 100% of provided a reasonable basis
items within a population of audit relevance such that all for conclusion about the
the sampling units have a chance of selection in order to population tested.
provide the auditor with a reasonable basis on which to
draw conclusions about the entire population.

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SA 550

"Related Parties"

Scope of Objectives of Requirements Identification of Identified significant Other

the SA the auditor of the SA previously unidentified related party transactions important
or undisclosed related outside the entity's normal points
part transactions. course of business
This SA deals with the auditor's
responsibilities regarding
related party relationships and
transactions. It expands on how
SA 315, SA 330, SA 240 are to be 1. Auditor shall determine The auditor shall obtain Written
applied in relation to related party whether the underlying Representation that:
relationships and transactions. circumstances confirm the a) all the related parties and related party
existence of such transactions. transactions have been disclosed to
2. Communicate within the the auditor and
team. b) all such transactions have been
A. To obtain an understanding of the
related party transactions to: 3. Request managment to properly accounted for and disclosed.
identify all transactions with
1. recognize fraud risk factors arising from
such transactions. newly identified related Communication with TCWG
parties. The auditor shall communicate with
2. conclude whether financial statements, in so
4. Perform more substantive TCWG significant matters arising
far as they are affected by such transactions
procedures. during the audit in connection with the
a) achieve a true and fair presentation. entity's related parties.
5. Reconsider risks with respect
b) are not misleading.
to other related parties.
Documentation:
6. If non disclosure by the
B. To obtain audit evidence as to whether The auditor shall include in audit
management appears
the related party transactions are documentation names of the related
intentional, evaluate the
properly identified, accounted for, and parties and the nature of the related
implications for the audit.
disclosed in the financial statements. party transactions.

1. Risk Assessment procedures and related activities. 1. Inspect the underlying contracts and
2. Understanding the Entity's related party relationships and evaluate:
transactions. a) the business rationale of the transactions.
3. Maintaining alertness for related party information when b) whether the terms of transactions are
reviewing records or documents. consistent with managment's explanations.
4. Sharing related party information with the Engagement team. c) whether such transactions have been
5. Identification and assessment of the risk of material properly accounted for.
misstatement associated with related party transactions and 2. Obtain audit evidence that the transactions
relationships.
have been appropriately authorised and
6. Responses to the Risks of Material Misstatement associated approved.
with related party relationships and transactions.

Definition
Related party- A party that is either:
i) a related party as defined in applicable FRF.
ii) where applicable FRF establishes minimal or no related party requirements:
a) A person or other entity that has control or significant influence, directly or
indirectly through one or more intermediaries, over the reporting entity,
b) Another entity over which the reporting entity has control or significant
influence, directly or indirectly through one or more intermediaries; or
c) Another entity that is under common control with the reporting entity
through having:
• common controlling ownership,
• owners who are close family members, or
• common key management.

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ADVANCED AUDITING AND PROFESSIONAL ETHICS
SA 560

"Subsequent Events"

Scope of Objectives of Events occuring Facts which become Facts that

the SA the auditor between the date known to the auditor after become known
of the Financial the date of the auditor's to the auditor
Statements and date report but before the date after the financial
of the auditor's report the financial statements statements have
are issued been issued

This SA deals Obtain sufficient appropriate 1. The auditor shall 1. Discuss the matter with
with auditor's audit evidence about whether perform audit management or TCWG.
responsibilities events occuring between the procedures to ensure 2. Determine whether the financial
relating to date of the financial statements that all such events statements need amendment.
subsequent and the date of the auditor's have been identified. 3. Inquire how management intends
events in report that require adjustment
an audit of to address the matter in the
of, or disclosure in, the financial financial statements.
financial statements are appropriately
statements. reflected in those financial
statements. 2. The auditor shall
consider the auditor's If manangement amends the
risk assessment in financial statements, auditor
determining the nature should extend the audit
and extent of such procedures and
Respond appropriately to the
procedures. 1. Either amend the audit report
facts that become known to
the auditor after the date of the to include an additional date
auditor's report, that, had they restricted to the amendment .
been known to the auditor at 2. Or provide a new/ amended
that date, may have caused the 3. If such event is report including a statement in
auditor to amend the auditor's identified, determine EOM/ OM para.
report. whether such event is
appropriately reflected
in financial statements.
If managment doesn't amend the
financial statements :
1. If audit report not yet provided
to the managment, modify the
4. Obtain Written
Definition opinion.
Representation that all
such events have been 2. If audit report has already been
Subsequent Events: provided to the management,
adjusted or disclosed.
Events occuring between the date of notify TCWG not to issue it to
the financial statements and the date third parties. If still issued then
of the auditor's report, and facts that take appropriate action to prevent
become known to the auditor after the reliance on the auditor's report.
date of the auditor's report.

1. Discuss the matter with management or TCWG.

2. Determine whether the financial statements need amendment.
3. Inquire how management intends to address the matter in the
financial statements.

Review if management has taken steps to inform about the

situation to everyone in receipt of the previously issued
financial statements.
1. If steps taken, issue new / amended report with EOM/ OM
para.
2. If steps not taken, then take appropriate steps to prevent
reliance on the auditor's report.

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 ADVANCED AUDITING AND PROFESSIONAL ETHICS

SA 570

"Going Concern"

Scope of Responsibilities Responsibilities When conditions Implications Other Important

the SA of the of the auditor or events are on the auditor's Points to be
management identified report considered

This SA deals 1. To obtain sufficient and Use of Going The auditor shall
with the auditor's appropriate audit evidence Concern Basis communicate with
responsibilities and conclude on the of Accounting is TCWG, events
in the audit appropriateness of the inappropriate The or conditions
of financial management's use of going auditor shall express identified that may
statements concern. an adverse opinion. cast significant
relating to going 2. To assess whether a material doubt on the entity's
concern and the uncertainty exists about the ability to continue
implications on the entity's ability to continue as a as a going concern.
auditor's report. going concern. Use of Going Concern
3. However, auditor cannot be basis of accounting
expected to guarantee the is appropriate but a If there is delay
entity's ability to continue as a material uncertainty in the approval
going concern. exists and: of the financial
Adequate disclosure statements and the
1. To make specific of material auditor believes that
assessment of the 1. Requesting managment to make its uncertanity is made such delay can be
entity's ability to asessment relating to entity's ability to in the financial related to events or
continue as a going continue as a going concern. s t a t e m e n t s - conditions relating
concern. 2. Evaluating management's plan of future Unmodified Opinion to going concern
actions. and a separate section assessment, the
3. Analysing the cash flow forecast of the "Material Uncertainty auditor shall
2. To make appropriate entity. related to going perform additional
disclosures in 4. Considering the additional facts or concern". procedures as well
connection with information available. as consider the
going concern in the 5. Requesting Written Representation from effect on auditor's
financial statements. management regarding the plans of future conclusion.
actions and the feasibility of these plans. Use of Going Concern
basis of accounting
is appropriate but a
material uncertainty
exists and:
Definition - SA 505 - "External Confirmations" Adequate disclosure
External Confirmation: Audit evidence obtained as a direct written of material
response to the auditor from a third party (the confirming party), in paper uncertanity is
form, or by electronic or other medium. not made in the
Positive confirmation request – A request that the confirming party financial statements-
respond directly to the auditor indicating whether the confirming party Qualified/ adverse
agrees or disagrees with the information in the request, or providing the opinion and mention
requested information. in the basis of opinion
paragraph.
Negative confirmation request – A request that the confirming party
respond directly to the auditor only if the confirming party disagrees with
the information provided in the request.
Non-response – A failure of the confirming party to respond, or fully
Management unwilling
respond, to a positive confirmation request, or a confirmation request
to make or extend its
returned undelivered.
assessment- Auditor
Exception – A response that indicates a difference between information shall consider the
requested to be confirmed, or contained in the entity’s records, and implications for the
information provided by the confirming party. auditor's report.

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ADVANCED AUDITING AND PROFESSIONAL ETHICS

SA 580

"Written
Representations"

Scope of Objectives of Written Representation Date & Periods covered by Important points
the SA the auditor as Audit Evidence Written Representation to be considered

Doubts as to reliability of
This SA deals 1. To obtain written Although Written Written Representations:
with the auditor's representation from the Representations If written representations
responsibility to management or TCWG that provide necessary are inconsistent with other
obtain written they believe that they have audit evidence, audit evidence, auditor shall
representation from fulfilled their responsibility they do not provide perform audit procedures
management and, for the preparation of the sufficient appropriate to resolve the matter.
where appropriate, financial statements and audit evidence on If the auditor concludes that
those charged with for the completness of the their own. the written representation
governance. information provided to the are not reliable, the auditor
auditor. shall take appropriate
action in accordance with
The date of Written SA 705.
Representation shall be
as near as practicable to,
2. To support other audit but not after, the date of Requested Written
evidence relevant to the the auditor's report on Representation not
financial statements or the financial statements. provided:
specific assertions in the
Written Representation Auditor shall discuss
financial statements by means
shall be for all financial with the management,
of written representations.
statements and periods re-evaluate the integrity
referred to in the auditor's of management, take
report. appropriate actions
including the impact on
3. To respond appropriately audit report as per SA 705.
to written representation
provided by managment/
TCWG.
Definition - SA 510 - "Initial Audit Engagements-
Opening Balances"

Initial Audit Engagement:

An engagement in which either:
Definition
1. The financial statements for the prior period were not
Written Representation: audited, or
A written statement by management 2. The financial statements for the prior period were
provided to the auditor to confirm certain audited by a predecessor auditor.
matters or to support other audit evidence.
Do not include financial statements, the Predecessor Auditor:
assertions therein, or supporting books or The auditor from a different audit firm, who audited the
records. financial statements of an entity in the prior period and
who has been replaced by the current auditor.

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 ADVANCED AUDITING AND PROFESSIONAL ETHICS

SA 600 - 699: Using Work of Others

SA 610

"Using the Work of Internal Auditors"

Scope of External auditor's Objectives of Using the work of Using Internal When using the
responsibility for the External the Internal Audit Auditors to provide work or direct
the SA the Audit Auditor Function direct assistance assistance

This SA deals with external External auditor shall determine

auditor's responsibilities if whether the work of the Internal Using the work of Internal Audit
using the work of internal Audit function can be used for the Function
auditors. This includes: audit by evaluating:
a) using the work of internal audit The External Auditor shall:
a) the objectivity of the Internal
function in obtaining audit a) discuss the planned use of the Internal
auditors.
evidence. Audit function.
b) level of competence of the internal
b) using the internal auditors to b) read the report of the Internal Audit
audit function.
provide direct assistance under function.
the direction, supervision and c) approach of Internal Audit function
c) perform sufficient audit procedures to
review of external auditor. including quality control.
evaluate the internal audit function.
External auditor shall determine
the nature and extent of work of
Internal Audit function that can be
used by:
The External Auditor has the a) considering the nature and scope
sole responsibility for the audit of work of Internal Audit function Using the Internal Auditors to provide
opinion expressed, and that and its relevance to the external Direct Assistance:
responsibility is not reduced by the auditor's overall audit strategy and The External Auditor shall:
external auditor's use of the work plan. a) obtain written agreement from the
of the internal audit function or entity.
b) making all significant judgements
internal auditors to provide direct
and preventing undue use of the b) obtain written agreement from the
assistance on the engagement.
internal audit function. internal auditors.
c) being sufficiently involved in the c) direct, supervise and review the work
audit. performed by the Internal Auditors.
d) communicating to TCWG, as to
how they have planned to use the
work of the internal audit function.
1. To determine whether the work of the
internal audit function or direct assistance The external auditor shall document
from internal auditors can be used, and if the above.
so, in which areas and to what extent; and
having made that determination:
External auditor shall determine whether Internal Auditors
can be used to provide Direct Assistance by evaluating:
a) the existence and significance of threats to objectivity and
2. If using the work of the internal audit b) the level of competence of the internal auditors.
function, to determine whether that work is
External auditors shall determine the nature and extent of work
adequate for the purposes of audit; and
that can be assigned to Internal Auditors providing Direct
Assistance by considering:
a) the amount of judgement involved.
3. If using internal auditors to provide direct b) the assessed risk of material misstatements.
assistance, to appropriately direct, supervise c) the evaluation as mentioned above.
and review their work. The external auditor shall be sufficiently involved in the audit
and shall communicate to TCWG, the nature and extent of the
planned use of internal auditors to provide direct assistance.
The external auditor shall document the above.

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ADVANCED AUDITING AND PROFESSIONAL ETHICS

SA 620

"Using the Work of an Auditor's Expert"

Scope of The auditor's Reference to the

Objectives of Requirements
responsibility for Auditor's Expert in
the SA the auditor of the SA
the audit opinion the Auditor's Report

This SA deals with auditor's 1. To determine whether to use the

responsibilities regarding work of an auditor's expert; and The auditor shall not refer to the work
the use of an individual or
of an auditor's expert in the auditor's
organisation's work in a
report containing an unmodified
field of expertise other than
2. If using the work of an auditor's opinion unless required by law or
accounting or auditing,
expert, to determine whether that regulation to do so.
when that work is used
to assist the auditor in work is adequate for the auditor's If the auditor makes a reference
obtaining sufficient and purposes. in the auditor's report for better
appropriate audit evidence. understanding of a modification to the
auditor's opinion, he shall indicate that
such reference does not reduce auditor's
responsibility for that opinion.

The auditor has sole responsibility for the audit

opinion expressed, and that responsibility is
not reduced by the auditor's use of the work of
an auditor's expert. 1. Determining the need for an auditor's expert.
If the auditor concludes that the work of
auditor's expert is adequate for his purposes,
he may accept the expert's findings or
conclusions in the expert's field as appropriate 2. Determining nature, timing and extent of
audit evidence. audit procedures.

3. Evaluating the competence, capabilities and

objectivity of the Auditor's expert
Definition

Auditor's Expert:
An individual or organisation possessing 4. Obtaining an Understanding of the field of
expertise in a filed other than accounting expertise of the Auditor's expert
or auditing, whose work in that field is
used by the auditor to assist the auditor in
obtaining sufficient and appropriate audit
evidence. 5. Agreeing with the Auditor's expert in
writing.

Management's Expert:
An individual or organisation possessing
expertise in the field other than accounting 6. Evaluating the adequacy of the Auditor's
or auditing, whose work in that field is Expert work.
used by the entity to assist the entity in
preparing the financial statements.

"A diamond is a chunk of coal that did well under pressure."

- Unknown

20 January 2021 The Chartered Accountant Student