Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards

CAS 200

Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards

CAS 200

Overall Objectives of the Auditor

In conducting an audit of financial statements, the overall objectives of the auditor are:

  1. 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
  2. To report on the financial statements, and communicate as required by the CASs, in accordance with the auditor’s findings
Requirements
Ethical Requirements
  • The auditor shall comply with relevant ethical requirements:
    • Integrity
    • Objectivity
    • Professional competence and due care
    • Confidentiality
    • Professional behavior
  • The auditor is also subject to the relevant independence and other ethical requirements set out in rules of professional conduct
Professional Skepticism
  • The auditor shall plan and perform an audit with professional skepticism
  • Professional skepticism includes being alert to:
    • Audit evidence that contradicts other audit evidence obtained
    • Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence
    • Conditions that may indicate possible fraud
    • Circumstances that suggest the need for audit procedures in addition to those required by the CASs
  • The auditor may accept records and documents as genuine unless the auditor has reason to believe the contrary
  • The auditor cannot disregard/ignore past experience with the honesty and integrity of management and those charged with governance
Professional Judgment
  • Professional judgment is necessary to make decisions about:
    • Materiality and audit risk.
    • The nature, timing and extent of audit procedures
    • Evaluating whether sufficient appropriate audit evidence has been obtained
    • The evaluation of management’s judgments in applying GAAP/other frameworks
    • The drawing of conclusions based on the audit evidence obtained (i.e. assessing the reasonableness of the estimates made by management)
  • Professional judgment needs to be appropriately documented; the auditor is required to prepare audit documentation sufficient to allow an experienced auditor, having no previous connection with the audit, to understand the significant professional judgments made in reaching conclusions on significant matters arising during the audit
  • Professional judgment is not to be used to justify decisions not supported by facts
Sufficient Appropriate Audit Evidence and Audit Risk
  • obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level
  • Sufficiency is the measure of the quantity of audit evidence
    • The quantity of audit evidence needed is affected by the assessment of the risks of misstatement (the higher the assessed risks, the more audit evidence required)
    • Obtaining more audit evidence doesn’t make up for poor quality evidence
  • Appropriateness is the measure of the quality of audit evidence
    • Appropriateness = relevant and reliable evidence
    • Reliability is based on the source of the evidence
  • Audit risk = risk of material misstatement + detection risk = risk of expressing an opinion that the F/S are free from material misstatements when in fact the F/S are materially misstated
    • audit risk does not include the risk that the auditor might express an opinion that the F/S are materially misstated when they are not
  • the risk of material misstatement occur at 2 levels:
    • the overall F/S level; and
    • the assertion level for individual classes of transactions, accounts and disclosures
  • The risks of material misstatement at the assertion level = inherent risk + control risk
  • Inherent risk = transactions being naturally risky
    • Complexity of accounting (revenue recognition)
    • Technological developments leading to obsolescence
    • Cannot be controlled by management or auditors
  • Control risk = risk arising from the internal controls (or lack thereof) implemented by management
    • Possibility of human errors/mistakes (input errors)
    • Ability to circumvent/override controls
    • Possibility of collusion
  • Detection risk = inversely relates to risk of material misstatement to bring overall audit risk to the desired low level
    • Detection risk is controlled by auditors by
      • obtaining sufficient appropriate evidence
      • adequately planning
      • Properly assigning staff to the engagement team
      • applying professional skepticism
      • supervising and reviewing the audit work performed
Conduct of an Audit in Accordance with CASs
  • The auditor shall comply with all CAS’s relevant to the audit
  • In exceptional circumstances, the auditor may judge it necessary to depart from a relevant requirement in a CAS; in such cases, the auditor should perform alternative audit procedures to achieve the aim of that requirement
  • This happens when a specific procedure is to be performed per a CAS, and the procedure would be ineffective in achieving the aim of the requirement

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