NSA 200 “Overall Objectives of the Independent Auditor & Conduct of audit in accordance with NSA" Summary

Table of Contents

Overall Objectives. 1

Scope of Audit. 1

Aspects to be considered by Auditor while performing Audit. 1

1.     Ethical Requirements. 1

2.     Professional Skepticism.. 1

3.     Professional Judgement. 2

4.     Sufficient and Appropriate Audit Evidence. 2

5.     Conduct of Audit in accordance with NSA.. 2

Other Explanations. 2

Overall Objectives

Ø  To obtain reasonable assurance about whether the F. S. 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 F.S. are prepared, in all material respects, in accordance with an applicable FRF.

Ø  To report on the F.S. and communicate as required by the NSAs, in accordance with the auditor’s findings.

Scope of Audit

Ø  to examine whether the F.S. are prepared in accordance with FRF.

Ø  The auditor’s opinion does not assure, the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs.

Aspects to be considered by Auditor while performing Audit

1.      Ethical Requirements

2.     Professional Skepticism

3.     Professional Judgement

4.     Sufficient Appropriate audit Evidence

5.     Conduct of Audit in accordance with NSA

1.  Ethical Requirements

Ø  Comprise Code of Ethics issued by ICAN including independence.

Ø  The fundamental principles are:

1.      Integrity

2.     Objectivity

3.     Professional competence & due care

4.     Confidentiality, &

5.     Professional behavior

Ø  Independence comprises both independence of mind and independence of appearance.

2.  Professional Skepticism

Definition: Attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

Alertness is required with respect to:

Ø  Contradictory audit evidence.

Ø  Reliability of documents.

Ø  Conditions indicating possible frauds.

Ø  Circumstances requiring audit procedures in addition to those suggested in NSAs.

3.  Professional Judgement

Definition: The application of relevant training, knowledge and experience,

Ø  within the context provided by auditing, accounting and ethical standards,

Ø  in making informed decisions about the courses of action

Ø  that are appropriate in the circumstances of the audit engagement.

It is required with respect to:

Ø  Materiality & audit risk.

Ø  NTE of audit procedures.

Ø  Evaluating sufficiency & appropriateness of audit procedures.

Ø  Evaluating management judgment in applying applicable FRF.

Ø  Drawing conclusions based on audit evidence.

4.  Sufficient and Appropriate Audit Evidence

Definition: Sufficiency refers to quantum and Appropriateness refers to quality.

Purpose: to reduce audit risk to an acceptably low level and thereby enable the auditor to draw reasonable conclusions on which to base the auditor’s opinion

Audit Risk: Risk that the auditor expresses an inappropriate audit opinion when the F.S. are materially misstated. Audit Risk is a function of the ROMM (Inherent risk * Control Risk) and detection risk.

5.  Conduct of Audit in accordance with NSA

Ø  The auditor shall comply with All NSAs relevant to the audit.

Ø  Compliance with NSA is to be specified in Audit report only in case of actual compliance.

Ø  To achieve overall objectives of audit, use the objective stated in Individual NSAs.

Ø  In case Entire NSA is not relevant due to non-existence of prescribed conditions, comply with relevant requirements.

Ø  In case of failure to achieve an objective determine the need of modified opinion or withdrawal.

Other Explanations

Ø  Preparation of FS is the duty of Management / TCWG.

Ø  Duty of management also includes make accounting estimates and selection and application of appropriate accounting policies.

Ø  Inherent Limitations for an audit:

1.      Nature of Financial reporting: involves judgment by Mngt. based on facts and circumstances.

2.     Nature of audit Procedures: directed towards obtaining reasonable assurance.

3.     Balance between benefit and cost: user expectation to get AR within a reasonable period and at reasonable cost.