financial statements, as a whole, are free of material misstatement. Reasonable assurance arises when the auditor obtains sufficient appropriate audit evidence to reduce audit risk to an acceptably low level (ISA 200.5). Go to ISA 200.A45 to .A52 for a discussion of the limitations of an audit. Consider whether you are familiar with the following definitions from your previous studies: ■ applicable financial reporting framework; ■ audit evidence; ■ audit risk; ■ detection risk; ■ misstatement; ■ professional judgment; ■ professional scepticism; ■ reasonable assurance; and ■ risk of material misstatement: n inherent risk, and n control risk. If not, you should refer to the definitions in ISA 200.13.
A D V A N C E D A U D I T A N D A S S U R A N C E S T U D Y G U I D E 2 . 7 ISA 200 sets out 11 paragraphs of requirements (ISA 200.14 to .24), and for each requirement gives, in brackets, the relevant paragraphs of the ‘Application and other explanatory material’. The requirements cover the following: ■ ethical requirements relating to an audit of financial statements (ISA 200.14 and ISA A14–A17). ■ professional scepticism (ISA 200.15 and ISA 200.A18–.A22); ■ professional judgment (ISA 200.16 and ISA 200.A23–.A27); ■ sufficient appropriate audit evidence and audit risk (ISA 200.17 and ISA 200.A28–.A52); and ■ conduct of an audit in accordance with ISAs (ISA 200.18 to .20 and ISA 200.A53–.A66). You should now refer to each of the above sections on requirements (ISA 200.14 to .24) and the relevant application and other explanatory material (ISA 200.A14–.A76). Australian Auditing Standard ASA 200 conforms with ISA 200 except in the following two situations which both relate to Complying with Relevant Requirements . For ASA 200.22 the following additional point (c) is addressed: (c) Application of the Requirement(s) would relate to classes of transactions, account balances or disclosures that are immaterial (ASA 200.Aus 22.1). In addition, ISA 200.23 is replaced by ASA 200.Aus 23.1 as follows: Where in rare and exceptional circumstances, factors outside the auditor’s control prevent the auditor from complying with an essential procedure contained within a relevant requirement, the auditor shall: (a) If possible, perform appropriate alternative audit procedures; and (b) In accordance with ASA 230 Audit Documentation [revised and redrafted], document in the working papers: (i) the circumstances surrounding the inability to comply; (ii) the reasons for the inability to comply; and (iii) justification of how alternative audit procedures achieve the objectives of the mandatory requirement (ASA 200.Aus 23.1). Some issues that warrant further discussion include: 1 The need for the auditor to exercise professional judgment and to maintain an attitude of professional scepticism throughout the conduct of the audit. Professional judgment permeates all areas of the audit. Professional judgment and scepticism are defined as follows in ISA 200.13 (k) and (l): Professional judgment—The application of relevant training, knowledge and experience, within the context provided by auditing, accounting and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.
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