Learning Objectives LO1 Describe the role of professional judgment in achieving the overall objectives of the independent auditor in conducting an audit.

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Presentation transcript:

Learning Objectives LO1 Describe the role of professional judgment in achieving the overall objectives of the independent auditor in conducting an audit of financial statements as set out in CAS 200. LO2 Explain how accumulated misstatements are evaluated at the conclusion of an audit to form an opinion on the fair presentation of general purpose financial statements. LO3 Describe the different forms of audit opinion and the decisions underlying the auditor’s choice of form. LO4 Explain the purpose of emphasis of matter (EOM) and other matter (OM) paragraphs in an audit report. LO5 Summarize the auditor’s communications throughout and at the conclusion of the engagement. 1

OVERALL EVALUATION OF EVIDENCE TO FORM THE AUDIT OPINION To achieve the overall objective of an audit, the auditor needs to formulate and report an audit opinion on the financial statements. In reaching this goal, auditors need to exercise professional judgment and maintain professional skepticism throughout planning and performing the audit. LO1 2

OVERALL EVALUATION OF EVIDENCE TO FORM THE AUDIT OPINION Professional judgment is defined as 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. LO1 3

OVERALL EVALUATION OF EVIDENCE TO FORM THE AUDIT OPINION Professional skepticism refers to an auditor 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. LO1 4

OVERALL EVALUATION OF EVIDENCE TO FORM THE AUDIT OPINION Auditor judgments include evaluating the auditee management’s judgments in applying accounting policies, making accounting estimates, and preparing the financial statements and notes LO1 5

OVERALL EVALUATION OF EVIDENCE TO FORM THE AUDIT OPINION Auditor judgments are made by considering such issues as those following: Is there documentation of the relevant accounting standards and other applicable sources that were considered by management and the auditor? Are the judgments based on facts and circumstances that are clearly documented? LO1 6

OVERALL EVALUATION OF EVIDENCE TO FORM THE AUDIT OPINION Auditor judgments are made by considering such issues as those following: Are any assumptions used justified and documented by management? Did the auditor challenge them and subject them to audit procedures? Were ranges of probable outcomes considered and documented by management? Were these evaluated for reasonability by the auditor? If not reasonable, what additional procedures did the auditor perform to support an opinion? Did the auditor consult, and is this documented? (“fly alone; die alone”) LO1 7

OVERALL EVALUATION OF EVIDENCE TO FORM THE AUDIT OPINION All decisions and conclusions need to be well documented so that an experienced auditor can understand the significant professional judgments that have been made. LO1 8