Description

Auditing and Assurance

Auditing and Assurance is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to conduct the audit of an entity.

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

• Demonstrate an understanding of the regulatory framework governing the external audit of financial statements
• Demonstrate an understanding of International Standards on Auditing where appropriate and the International Code of Ethics for Professional Accountants (including International Independence Standards)
• Implement the process of planning an audit, prepare audit programs and effectively conduct an audit
• Undertake audit risk assessments (excluding group accounts)
• Apply the risk based audit approach to audit of limited companies
• Prepare non – complex audit reports for audit

CONTENT

1.                   Nature and purpose of an audit

• Nature and objectives of an audit
• Development of audit (early audit and modern audit)
• Users of audited financial statements
• Features of audits
• Distinction between auditing and accounting
• Types and classification of audits
• Situations when different audits are performed (interim, continuous, final, operational)
• Advantages and disadvantages of various types of audits
• Nature of work done for different audits
• Inherent limitations of an audit

2.         Assurance and non- assurance engagements

• Definition and objectives of assurance engagements
• Audit as an assurance engagement
• Elements of an assurance engagement
• Types of assurance engagements (Audit, Review assignments)
• Differences between audit and review engagements
• International Standard on Assurance Engagement-ISAE 3000
• Accepting appointment to perform assurance engagement
• Review of interim financial information – ISRE 2410
• Levels of assurance and reports issued on assurance engagements
• Non-assurance engagements (Agreed upon procedures engagement -ISRS 4400 and compilation assignments-ISRS 4410
• Attestation and direct reporting engagements

3.           Legal and professional framework

• Regulatory framework for external audits
  • Appointment of the auditors
  • Qualifications and disqualifications of auditors
  • Removal and resignation of auditors
  • Remuneration of the auditors
  • Rights and duties of auditors
  • Mechanisms of regulations of auditors-role of professional bodies, Audit committee, rotation of audit firms
• Professional ethics/code of ethics for professional accountants
  • Importance of the professional ethics
  • Basic/fundamental principles for Code of Ethics for accountants
  • Other professional guidelines on audit fees, conflict of interest, advertising and publicity and opinion shopping by clients
  • Auditors independence /objectivity and its importance
  • Threats to independence and
• Threats on adherence to other fundamental principles and safeguards to the threats
• Development and status of ISAs in execution of audits
• Relationship between International Standards of Auditing and National Auditing Standards
• Purposes/importance of adoption of ISA in the

4.                   Planning and Risk Assessment

• Obtaining, accepting and retention of an audit engagement
  • Matters to consider before and after acceptance of nomination
  • Pre-conditions of an audit
  • Engagement letter, procedure of sending letter, purposes and contents of the letter-ISA 210
  • Circumstances for revision of engagement terms
  • Understanding the entity and its environment
    • Background information about the entity or
    • Ways of gathering knowledge about the business
    • Reasons/importance of information gathered about the client
    • Reasons of review of previous audit files and communication with previous auditors
  • Overview of audit process

5.            Audit risk assessment

• Components of audit risk (Inherent, Control and Inherent risks)
• Assessment of different types of audit risks
• Factors leading to increase or decrease of inherent, control and detection Risks
• Adoption of risk based audit, reasons and procedure
• Advantages and Disadvantages of the approach
• Evaluating and prioritising risk and control factors
• Mechanisms to minimise the risks associated with client

6.          Audit planning

• Purpose and challenges in audit planning
• Planning for new and existing clients
• Development of the overall audit strategy
• Contents of audit planning memorandum/ overall plan
• Relationship between audit strategy and audit plan
• Design of audit programs, importance and problems of the programs
• Impact of material misstatements on audit strategy and degree of work done
• Influence of interim audit work on the year end/final

7.                   Audit documentation

• Reasons and importance of audit documentation
• Sources, features and purposes of working papers
• Storage of working papers-permanent audit file and current audit file, auditors note book or diary
• Lien or custody on working papers
• Standardisation of working papers – advantages and disadvantages
• Safe custody and retention of working papers
• Form and content of working papers
• Automated working papers
• Quality control policies and procedures implemented by audit firm
• Objectives of quality controls to the audit firm/ auditors
• Peer review and its objectives

8.     Internal control systems and Internal Audit Function

• Internal control systems (ICS)
  • Objectives of internal control system
  • Component of internal control system
  • Features of Internal control system
  • Designing of internal control
  • Auditors and management responsibility over ICS
  • Advantages and disadvantages /inherent limitations of ICS
  • Indicators of weaknesses in ICS and actions taken by management
  • The evaluation of internal control systems by auditors using Internal Control Questionnaire, Flow charts and narrative notes
  • Tests of controls on specific control environments
  • Internal controls theory and practice-sales and debtors, purchases and creditors, inventories and work in progress, fixed assets, salaries and wages
  • Communication of improvements on ICS weaknesses/ risks associated

– Management letter.

9.                   Internal Audit Function

• Scope and objectives of internal audit
• Criteria of using internal audit work
• Areas of support on external auditors’ work
• Internal audit review reports and actions by management and those charged with governance
• Design of risk based internal audit plan
• Internal audit key performance indicators
• Managing and monitoring follow up of audit recommendations made to board/ management.
• Outsourcing internal audit function-advantages and
• Audit committee-functions, merits and
• Internal check systems-scope, features, advantages and disadvantages
• Information technology threats and control
• Auditors duty on compliance with laws and

10.               Overview of Forensic Accounting, Errors, Frauds and Irregularities

• Overview of forensic accounting
  • Nature, purpose and scope of forensic accounting
  • Types of forensic investigations: corruption, asset misappropriation, financial statement fraud, others
  • Asset Recovery process and legal framework

11.               Errors, Frauds and Irregularities

• Differences between error and frauds
• Types of errors-omission, commission, principle, reversal of entries
• Types of Frauds-Teeming and lading, ghost employees, window dressing, misappropriation of goods and fraudulent financial reporting
• Causes of frauds and fraud triangle
• Indicators of errors and frauds
• Detection and prevention of errors and frauds and deterrence-role of internal audit
• Materiality and Implications of errors and frauds in the financial statements
• Impact of errors and frauds on the audit plan
• Reporting on error and frauds
• External auditors and Management responsibility on error and frauds
• Auditors professional

12.     Audit evidence

12.1                 Financial statement assertions and audit evidence

• Types and features of audit evidence (sufficiency, reliability and relevance)
• Audit evidence gathering procedures/ techniques
• Materiality and limitations of audit evidence
• Financial statement assertions and audit evidence
• Audit sampling techniques – statistical and non-statistical
• Analytical reviews procedures- nature, objectives, timing and extent of support evidence
• Types of analytical Procedures-Variance analysis, reasonableness tests, trend analysis
• Using the work of experts- areas of support and considerations
• Using management representations (importance, procedures adopted and matters covered).

13.     Auditing in the public sector

13.1              Introduction to auditing in the public sector and regulatory provisions

• Objective and scope of public sector audit (compliance, performance, financial, value for money)
• Establishment, mandate and functions of public sector auditors
• The parties to audit in public sector-auditor, responsible party and intended users
• Role of internal audit function in public entities
• Relationship between external and internal auditors in the public sector
• Audit reports by office of Auditor
• Functions of audit advisory board and executive committee in Auditor General office.

14.               Auditors Reports

• Purposes of auditors’ report and concept of true and fair view
• Legal /Statutory provisions on audit reports
• Basic elements contents of audit reports
• Emphasis of the matter paragraph and key audit matters
• Types and Consequences of different types of audit reports
• Features of unqualified and qualified audit reports
• Reasons for qualifications of audit reports (Limitation of scope, inherent uncertainties, disagreements)
• Types of qualifications-disclaimer, except for and adverse
• Overall audit review and finalisation
• Subsequent events/Post balance sheet events review (adjusting and non – adjusting events, auditor’s responsibility and audit procedures)
• Going concern review (Auditors and management responsibility, indicators of going concern difficulties, audit procedures, mitigation plans and reporting)
• Management representations on contentious matters affecting financial statements like guarantees made, capital commitments, borrowings, unusual accounting
• Review of compliance with accounting policies, opening balances, prior period audits by other auditors
• Format for presentation of independent auditor’s

15.               Auditing in a computerised system

• Audit objectives in computerised systems
• Differences between computerised and manual systems
• Benefits and drawbacks of computerised accounting systems
• Types of controls in computerised systems (Administrative, system development, processing controls, application controls, master files and standing data
• Auditors use of computers in the course of audit
• Planning the audit in computerised systems
• Audit approaches – audit around, with and through the computer and circumstances when each is applied
• Loss of audit trail, causes and measures to mitigate the loss of audit trail
• Computer Assisted Audit Techniques (CAATS) – Audit software and test data
• Types of audit software and functions and types of test data
• Factors considered before using CAATS and steps in CAATS application
• Advantages and disadvantages of CAATS
• Use of embedded audit modules and integrated test facilities
• Information security controls (Encryption, Firewalls, Passwords, Antivirus)

16.              Contemporary and emerging issues in audit

16.1        E- commerce auditing

• Cloud documentation
• Use of data analytics tools in audit (Anomaly detection, diagnostic analysis, predictive