Audit, Business Processes & Digitalization BL5 Tutorial PDF

Audit, Business processes & Digitalization Business Level 5 [BL5] Tutorial / Video - 1 Dinith Kularathna ACA, AAT Passed Finalist B.B.Mgt.(Finance), University of Kelaniya Contact numbe...

Audit, Business processes & Digitalization Business Level 5 [BL5] Tutorial / Video - 1 Dinith Kularathna ACA, AAT Passed Finalist B.B.Mgt.(Finance), University of Kelaniya Contact number – 070 2427286 PwC | Dialog Axiata PLC 1 Objective and fundamentals of Auditing Standard reference :- SLAUS 200 “Overall objectives of the independent auditor And the conduct of an audit in accordance with Sri Lanka standards on auditing” Objective of an Audit (a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and (b) To report on the financial statements, and communicate as required by the SLAUSs, in accordance with the auditor’s findings. Principles of Auditing 1. Sri Lanka Auditing Standards 2. Ethical requirements 3. Professional scepticism 4. Professional judgement Sri Lanka Auditing Standards Professional Scepticism Auditing Standards provide minimum guidance for the Professional skepticism includes being alert to, auditor that helps determine the extent of audit steps Audit evidence that contradicts other audit evidence and procedures that should be applied to fulfill the obtained. audit objective. They are the criteria or yardsticks Information that brings into question the reliability of against which the quality of the audit results are documents and responses to inquiries to be used as evaluated. audit evidence. Conditions that may indicate possible fraud. Circumstances that suggest the need for audit Professional Judgement procedures in addition to those required by the SLAUSs. The application of relevant training, knowledge and experience, within the context provided by auditing, Maintaining professional skepticism throughout the accounting and ethical standards, in making decisions audit is necessary if the auditor is, for example, to reduce about the audit engagement. the risks of, Overlooking unusual circumstances. Professional judgment is essential to the proper conduct Over generalizing when drawing conclusions from of an audit. This is because interpretation of relevant audit observations. ethical requirements and the SLAUSs and the informed Using inappropriate assumptions in determining the decisions required throughout the audit cannot be made nature, timing and extent of the audit procedures and without the application of relevant knowledge and evaluating the results thereof. experience to the facts and circumstances. Professional judgment is necessary in particular regarding decisions Simply, professional skepticism is maintaining a about: questionable mindset and being alert on possible misstatements throughout the audit. Materiality and audit risk. The nature, timing and extent of audit procedures. Evaluating whether sufficient appropriate audit Ethical Requirements evidence has been obtained. The evaluation of management’s judgments in Independence applying the financial reporting framework. Integrity The drawing of conclusions based on the audit Objectivity evidence obtained. Professional due care Confidentiality Professional behaviour Technical competency 2 Audit Risk Audit risk (Overall audit risk) is issuing an inappropriate opinion on the financial statements. It comprises of three elements. Inherent risk – The risk which occur due to not having proper controls in an entity. Such risk is out of As these two risks are the control of an auditor. uncontrollable in auditor’s hands, these are the causes to Control risk – The risk which occur due to the occur material misstatements inefficiencies of existing controls. Such risk is out of the (Risk of material control of an auditor. (Company do have controls but misstatement ) not effective) Detection Risk – The risk which occur where material misstatements are included in the financial statements and auditor’s procedures does not detect them. It is a controllable factor in auditor’s hands. Following actions can improve the effectiveness and application of audit procedures to reduce the detection risk. Adequate planning Assignment of experienced staff Application of professional skepticism Increased supervision and review of audit work 3