BAC 582 :ADVANCED AUDITING AND

ASSURANCE
 Brief Outline
Introduction
Professional Conduct
Professional Appointments
Professional Responsibility And Liability
Practice Management & Environment
Audit Planning And Strategy
Audit Evidence
Audit Evaluation And Review
Audit Reports
Audit Of Financial Statements
TOPIC ONE: INTRODUCTION
1.1 Definition of key concepts
Regulatory bodies and standards
a) IIAs
b) IAS
c) ISA
d) IFRSs
e) GAAP
f) IFAC
g) ICPAR
• Audit is an official inspection of an organization's accounts,
processes, procedures conducted by an independent person
or audit firm.
• It is the examination of an entity's accounting records, as
well as the physical inspection of its assets.
• An assurance engagement as “one in which a practitioner
expresses a conclusion designed to enhance the degree of
confidence of the intended users other than the responsible
party about the outcome of the evaluation or measurement
of a subject matter against criteria (by ISA)
Key elements in assurance engagement
3-party
relationship

Report Subject
Elem matter
ents

Evidence Criterion
Levels of assurance engagement
• There are various levels of assurance but these depends on:
i) Individual engagement
ii) The criteria applied
iii) Subject matter
• However, ISA refers to two types:
a) Reasonable level of assurance
b) Limited level of assurance
• Note also that absolute assurance cannot be guaranteed.
1.2 Why Auditing & Assurance
i. Protects the entity or owner’s interest
ii. Agent-Principal challenges
iii. Maintaining confidence in the market
iv. To ensure Compliancy
v. For decision making
vi. Risk mitigation
vii. As a statutory requirement
1.3 Types of audit
• Audit is classified into many different types and levels
of assurance according to the objectives, scopes,
purposes, and procedures of how auditing is
performed.
 Internal audit
Statutory
audit External audit

Compliance
audit
Types Forensic audit

Operation Financial
audit audit
Tax audit
1.4 Audit Procedure

Appointment

Planning

Execution

Reporting
1.5 Audit Techniques
• These are processes and methods that auditors perform to obtain
audit evidence which enables them to make a conclusion on the set
audit objective and express their opinion.
 Analytical
Review

Inspection
Observations
Audit
Techniques

Recalculation
Inquiry
 1.6 Limitation of an audit
i) Not exhaustive
ii) Its dependent on representations from management
iii) Evidence gathered is persuasive rather than conclusive
iv) Auditing is not purely an objective exercise
v) The timing of an audit
vi) An unqualified audit opinion is not a guarantee of a company’s
future viability, the effectiveness and efficiency of
management, nor that fraud has not occurred in the company
1.7 Audit Environment
Ethics
Legal &
Regulatory Internal Controls &
environment financial statements

Audit
Risk Corporate
assessment Governance &
current issues
Reporting
TOPIC TWO: PROFESSIONAL CONDUCT
• An auditor should carry his/her responsibilities within the
professionalism required in the code of ethics.
• The IFAC and ISPAR code of ethics provide the fundamental principles
to be followed:
 Integrity

Objectivity
Professional
behavior

Professional
competence &
Confidentiality due care

Independence
• Note: Different circumstances may raise specific threats
(or risks) to compliance with the fundamental principles.
• According to ICPAR conceptual framework, it is the duty
of the auditor to:
i) Identify
ii) Evaluate
iii) Address the threat
The risk can be reduced to acceptable levels, eliminated or
an auditor can decline/terminate the engagement
• Advantages of a framework over a system of rules:
i) A framework requires that the auditor reviews
threats for every given situation and act accordingly
ii) A framework prevents the auditor from interpreting
technical issues
iii) Rules don’t always cover all situations
iv) Rules need to be constantly amended
 2.2 Audit Independence
• Independence is a state of mind that permits the provision of an
opinion without being affected by influences that compromise
professional judgment.
• It allows an individual to act with integrity and exercise
objectivity and professional judgment.
• Two kinds of independence are required:
i) Independence of mind
ii) Independence in appearance
• An auditor needs to be and seen to be independent
• It is the responsibility of the auditor to:
i) Avoid circumstances that can compromise his/her
independence
ii) Provide an objective opinion
iii) Act professionally when dealing with the client
The auditor’s independence is important because in
increases the public confidence in the markets.
2.2.1 Threats to independence
 Self-interest

Self-review

Familiarity

Management threats

Intimidation

Advocacy
Independence
Threat
2.2.2 Safeguards to Independence
• These tend to eliminate or reduce threats to
acceptable levels:
a) Safeguards created by profession, legislation or
regulation
b) Safeguards in the work environment (within auditor
system or client’s company)
• International standard on quality control sets out standards and
procedures regarding a firm’s responsibilities for its system of quality
control audits:
i) The firm should establish a system of quality control designed to
provide it with reasonable assurance that the firm and its personnel
comply with professional standards and regulatory and legal
requirements.
ii) The firm’s system of quality control should include policies and
procedures addressing elements such as leadership responsibilities,
ethical requirements, acceptance of engagements, human
resources, engagement performance and monitoring.
iii) The quality control policies and procedures should be documented
and communicated to the firm’s personnel.
 2.3 Audit Confidentiality
• Any information acquired should not be
i) disclosed to third parties without proper and specific authority
ii) Used for personal interest
• Exceptions:
i) Disclosures permitted by law
ii) Disclosure authorized by client
iii) Money laundering cases
iv) Where there is theft and fraud offences
v) Where professional duty calls
• Having decided that there should be some disclosure, the auditor
must consider-
i) Whether the interests of any parties could be harmed by such
disclosure and whether the auditor will incur legal liability as a
result of the disclosure.
ii) Whether all relevant facts are known and substantiated.
iii) The type of communication that is expected and to whom it
should be addressed.
ISA 250 provides that if auditors become aware of a suspected or
actual occurrence of non-compliance with law and regulation
which give rise to a statutory right or duty to report, they should
report it to the proper authority immediately. In all cases of
disclosure where there is a duty of confidentiality, you should seek
legal advice.
2.4 Areas of Controversy on Independence
• Many audit firms are now offering a wider variety of
services
i) Specialist services
ii) Seeking second opinions
iii) Conflict of interest
iv) Insider dealings