Caf 8 Mi Vol 1

CERTIFICATE IN ACCOUNTING AND FINANCE 8
AUDIT & ASSURANCE
VOLUME 1
COMPILED BY: MUHAMMAD IBRAHIM, ACA

IQ SCHOOL OF FINANCE WWW.IQSF.PK
S.no STANDARD Page Number

01 ISA 200- Overall objective 3-7
02 ISA 210- Engagement letter 8-18
03 ISA 240- Fraud 19-31
04 ISA 315- Audit Risk 32-38
05 ISA 320 - Materiality 39-45
06 ISA 500- Audit Evidence 46-62
07 ISA 505 – External Confirmation 63-69
08 ISA 520- Analytical procedures 70-74
09 ISA 550- Related Party 75-85
10 ISA 560 – Subsequent Event 86-94
11 ISA 570- Going Concern 95-105
12 ISA 580 – Written Representation 106-116
13 ISA 610 – Internal Auditor 117-121
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14 ISA 620- Auditor Expert 122-126
15 ISA 700 – Auditors Report 127-142
16 ISA 701 - KAM 143-153
17 ISA 705 - Modification 154-172
18 ISA 706 – EOMP & OMP 173-177
19 General Concept 178-187
20 ISA 230 – Documentation 188-194
21 ISA 300 – Planning 195-205
22 Internal Controls 206-217
23 Inventory 218-226
24 ISRE 2400 – Review of FS 227-233
25 NPO 234-236
26 Companies Act, 2017 237-252
27 Internal Control past papers 253-258
28 Recent Past papers 259-281
29 ICAP CODE OF ETHICS 282-340
30 ISA 220 341-343
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INTERNATIONAL STANDARD ON AUDITING 200

OVERALL OBJECTIVE OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN
ACCORDANCE WITH ISA
SCOPE:
INDEPENDENT AUDITORS OVERALL RESPONSIBILITY TO CONDUCT AN AUDIT IN

ACCORDANCE WITH INTERNATONAL STANDARD ON AUDITING
OBJECTIVE:
TO OBTAIN REASONABLE ASSURANCE TO REPORT ON

WHETHER FS ARE FFREE FROM FINANCIAL
MATERIAL MISSTATEMENT STATEMENTS
BEFORE WE DISCUSS AUDITORS RESPONSIBILITY, IT IS NECESSARY TO UNDERSTAND

MANAGEMENT RESPONSIBILITY (Recall the 5 elements of ASSURANCE ENGAGEMENT)
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To prepare FS n a/c For such Internal Control To provide the
with AFRF (IFRS) to enable the auditor with all
preparation of FS that information
are free from Material
Misstatement whether
due to error or fraud
NOW LETS DISCUSS OBJECTIVE / RESPONSIBILITY OF AN AUDITOR
AUDITOR IS RESPONSIBLE TO OBTAIN REASONABLE ASURANCE
FS as a whole are free material

To express an opinion whether FS are
misstatement whether due to fraud or
prepared in a/c with AFRF (IFRS)
error
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NOW QUESTION ARISE WHAT IS REASONABLE ASSURANCE

LET’S DISCUSS THIS WORD SEPARATELY
REASONABLE is the ASSURANCE is to

high level of enhance the degree
assurance but not the of confidence of the
absolute assurance intended user
WHY AUDITOR CAN NOT EXPRESS ABSOLOUTE ASSURANCE?
The auditor is not expected to, and cannot, reduce audit risk to Zero and cannot therefore obtain absolute
assurance that the FS are free from Material Misstatement due to fraud or error. This is because there
are inherent limitation of an audit, which result in most of the audit evidence on which the auditor
draws conclusion and bases the auditors opinion being persuasive rather than conclusive
WHAT ARE INHERENT LIMITATION OF AN AUDIT?
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The inherent limitation of an audit arises from:
Audit to be
Nature of Financial Nature of Audit conducted with a
Reporting Procedures reasonable period of
time and cost
Preparation of FS Possibility that Fraud may involve There is an

involved management may sophisticated and expectation by user
judgement by not provide either carefully organized of the FS that auditor
management in intentionally or schemes to designed will form an opinion
applying the unintentionally to conceal it. within a reasonable
requirement of complete Therefore audit period of time and
AFRF(IFRS). For information procedures may be cost. Therefore audit
e.g. accounting conducted on
ineffective to detect
estimates sampling basis
intentional
misstatement. E.g.
falsifying documents
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WHAT ARE THE GENERAL REQUIRMENT SO THAT AUDITOR CAN OBTAIN REASONABLE
ASSURANCE
OR
WHAT ARE THE GENERAL REQUIRMENT OF ISA 200
Plan and perform the Exercise professional

Shall obtain Sufficient
Comply with the audit with judgement in
Appropriate Audit
ethical requirement professional planning and
Evidence
skepticism performing an audit
of FS
What is PS? What is PJ?
An attitude that includes a The application of relevant training ,
Integrity
questioning mind, being alert knowledge and experience within the
Objectivity to conditions which may context provided by auditing,
indicate possible misstatement accounting and ethical standards in
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Professional due to error or fraud and making informed decision about the
competence and due critical assessment of audit courses of action that are appropriate in
care evidence the circumstances
Confidentiality Example of PS? Uses of PJ?
Professional Audit evidence that

Materiality and audit risk
behaviour contradicts other audit
evidence N,T&E of AP used to obtain AE
Information that bring into Evaluate whether SAAE has been obtained
question the reliability of
Evaluation of management judgement in
documents
applying AFRF
Condition that may indicate
Drawing conclusion based on audit evidence
possibility of fraud
obtained. For e.g. assessing the
Advantages of maintaining PS reasonableness of the estimates by the
management
Maintaining PS throughout the audit is necessary to
reduce the risk of:
Overlooking unusual transaction
Over generalizing when drawing conclusion from

audit observation
Using inappropriate assumptions in determining the

N,T&E of audit procedures and evaluating result
thereof
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DIFFERENT LEVEL OF ASSURANCE
REASONABLE ASSURANCE LIMITED ASSURANCE

A high but not absolute level of Moderate level of assurance
assurance
Expressed in positive form Expressed in negative form
The objective of statutory audit is to The objective of review engagement
provide reasonable assurance is to provide limited assurance
Extensive audit procedures such as Procedures primary limited to inquiry
confirmation, vouching, bank and analytical procedures
statement etc.
CONCEPT OF STEWARDSHIP, AGENT and ACCOUNTABILITY

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STEWARDSHIP ACCOUNTABILITY
The directors have a AGENT As agent of the shareholders, the
stewardship role. They board of directors is accountable
The concept of agency
look after the assets of to the shareholder. The director
applies whenever one
the Company and shoe their accountability to the
person or group of shareholders by preparing annual
manage them on behalf individuals acts as an agent financial statements
of the company. on behalf of Principal
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ISA 200 PAST PAPERS
Autumn 2018
AUTUMN 2015
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Autumn 2017
Autumn 2016
SPRING 2013
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ISA 210
AGREEING THE TERMS OF AUDIT ENGAGEMENT
SCOPE
OBJECTIVE
Auditor’s responsibilities in
agreeing the terms of audit To accept or continue and audit engagement
engagement with only when the basis upon which it is to be
management or TCWG performed has been agreed through:
a. Whether preconditions for an audit are
present
b. Confirm that there is a common
understanding between the auditor and
management of the terms of audit
engagement
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FIRST OBJECTIVE:WHAT IS PRECONDITION
2.Agreement of management or TCWG

1.The use by management of an
to the premise on which audit is
acceptable FRF in the preparation of FS
conducted
WHAT IS PREMISE? And what agreement to be obtained?

Obtain the agreement of management that it acknowledge
and understand its responsibility:
DETERMING THE APPLICABILITY OF
• For the preparation of FS in a/c with AFRF
FINANCIAL REPORTING FRAMEWORK
• For such IC as management determines is necessary
Nature of the entity for e.g. banks, to enable the preparation of FS free from Material
manufacturing and mutual funds Misstatement whether due to error or fraud
• To provide the auditor with:
Law or regulation prescribed o Access to all information of which management
is aware that is relevant to the preparation of
FS
o Additional information that auditor may request
from the management for the purpose of audit
o Unrestricted access to persons within the entity
from whom auditor determines it necessary to
obtain audit evidence
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Response if preconditions are not present

If the preconditions for an audit are not present, the auditor shall discuss the matter with management. The auditor
should explain what the preconditions are and that they are required in order to comply with ISA 210 Agreeing the
terms of audit engagements. The auditor should also explain that one of the purposes of the preconditions, and
agreeing the terms of the audit engagement in general, is to avoid misunderstanding about the respective
responsibilities of management and the auditor.
Unless required by law or regulation to do so, the auditor shall not accept the proposed audit engagement where:
❑ a limitation on scope is imposed by management such that the auditor would be unable to express an opinion
on the financial statements, or
❑ the financial reporting framework to be used in the preparation of the financial statements is unacceptable, or
❑ management do not agree to the above responsibilities (the ‘premise’) stated in the preconditions.
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SECOND OBJECTIVE: AGREEING THE TERMS OF ENGAGEMENT
The auditor shall agree the terms of audit engagement with management or TCWG in an AUDIT
ENGAGEMENT LETTER
WHAT TERMS OF AUDIT ENGAGEMENT SHOULD BE INCLUDED IN ENGAGEMENT LETTER?
Reference to the
Objective and
Responsibilities Responsibilities Identification of expected form
Scope of Audit of
of Auditor of Management AFRF and content of
FS
Audit report
WHAT ARE THE ADVANTAGES OF ENGAGEMENT LETTER

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It is in the interest of both the entity and the auditor that the auditor sends an audit
engagement letter before the commencement of the audit to help avoid misunderstanding
with respect to audit
WHAT ADDITIONAL MATTERS CAN BE COMMUNICATED IN ENGAGEMENT LETTER (OPTIONAL)
A request for
To Theinformfact The
that Arrangement Expectation management
thebecause
auditor of on regarding
basis that to
about
inherent
the which planning and manageme acknowledge
events
limitation of fees
an are performance of nt will receipt of the
occurred
audit, there iscompute
an Audit
the audit provide
unavoidable
after the risk
d and including the written
engagement
that of some
date any letter and to
composition of an representati
material
Auditors billing audit agreethe
on termsof
misstatement
report arrange
engagement
ment
Arrangement Arrangement Arrangement to Any restriction of Any obligation to

regarding the regarding the be made with the auditors provide audit
involvement of involvement of previous auditor liability working papers
other auditor or Internal auditor to other entities
expert
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RECURRING AUDIT
Lets Assume you have finalized 2016 audit now do we need to send Engagement letter again to
Management or TCWG for the audit of 2017 i.e. for RECURRING AUDIT?
The auditor may decide not to send a new engagement letter each period however on
recurring audit, the auditor shall assess whether
• circumstances require the terms of the audit engagement to be revised and

• Whether there is a need to remind the entity of the existing terms of engagement.
A Any
A Any indication
significant
A recent A change A change A change revised or that the
change in
change of in the in legal or in other special entity
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significant nature or
senior change in financial regulatory reporting terms of misunders
size of
managem ownership reporting requirem requireme the audit tands the
the objective
ent framewor ents. nts. engagem
entity’s and scope
k ent.
business. of audit
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ACCEPTANCE OF A CHANGE IN TERMS OF ENGAGEMENT
The auditor shall not agree to a change in terms of the audit engagement where there is no reasonable
justification for doing so
Always consider:
whether there is reasonable
justification for doing so;
Reason for change Information in request of which the
in terms of change is requested by the
management; and
engagement
legal or contractual implication of the
change
Change in Misundersta Restriction on the scope of

circumstanc nding as to audit engagement.
e affecting nature of an
the needs The auditor shall consider the
audit as
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for the justification given for request

originally particularly implication of a
service requested restriction on the scope of audit
engagement
Reasonable basis
A change may not be considered reasonable if it
appears that change relates to information that is
incorrect, incomplete or otherwise unsatisfactory
If the terms of the audit E.g.: where auditor is unable to obtain SAAE
engagement are changed, the regarding receivable and entity ask the audit
auditor and management shall
engagement to be changed to review engagement
agree on and record the new
terms of the engagement in an
engagement letter.
If the auditor is unable to agree to a change of

the terms of the audit engagement and is not
permitted by management to continue the original
audit engagement, the auditor shall:
(a) Withdraw from the audit
engagement where possible under
applicable law or regulation; and
(b) Determine whetherthere is any
obligation, either contractual or
otherwise, to report the
circumstances to other parties,
such as those charged with
governance, owners or regulators.
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ENGAGEMENT LETTER FORMAT AS PER ISA 210
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PAST PAPERS MODULE D
Spring 2018
Spring 2017
Autumn 2015
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SPRING 2015
Autumn 2014
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Autumn 2012
Summer 2012
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Autumn 2011
Summer 2011
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Summer 2010
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SPRING 2019
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ISA 240
THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF FINANCIAL

STATEMENTS
Scope Objectives
• Auditor’s responsibilities relating to • To identify and assess the ROMM of
fraud in an audit of FS. the FS due to fraud.
Also deals with how ISA 315 and ISA • To obtain SAAE regarding the
330 are to be applied in relation assessed ROMM due to fraud.
ROMM due to fraud • To respond appropriately to fraud or
suspected fraud.
Characteristics of Fraud
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Misstatements in the FS can arise from Fraud is a broad legal concept, the
either: auditor is
Fraud (Intentional) Error.(Unintentional) Misstatements resulting Misstatements resulting

from fraudulent financial from misappropriation of
reporting assets.
Examples Examples
• Manipulating, falsification (including forgery), or • Embezzling receipt (Misappropriating collection on
alteration of accounting records or supporting account receivable or diverting receipt in respect of
documentation from which FS are prepared written off accounts to personal bank accounts
• Misrepresenting or intentionally omission from, the • Stealing physical asset or intellectual property( for eg.
financial statement of events ,transactions or other Stealing inventory for personal use or for sale,
significant information stealing scrap for resale, colluding with a competitor
• Intentional misapplication of accounting principles by disclosing technological data in return for payment
relating to amounts, classification, manner of • Causing an entity to pay for goods not received -
presentation, or disclosure Payment to fictitious vendors, kickbacks paid by
vendor to the entity’s purchasing agent in return for
inflating price, payment to fictitious employees
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RESPONSIBILITIES
Management Auditor
• Creating culture of • Maintain Professional Skepticism
Honesty and ethical • Engagement team discussion
behavior • Identify and assess the ROMM
• strong emphasis on fraud • Response to those risk by performing audit procedures to obtain SAAE
prevention • Respond if circumstances indicate the possibility of fraud
• Consider the potential for INHERENT LIMITATIONS
override of control Despite of the above responsibilities there are inherent limitation the auditor
may not detect fraud:
• Fraud is properly planned and organized
• Collusion - Collusion may cause the auditor to believe that audit
evidence is persuasive when it is, false.
• Difficult to detect if senior management involved
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Requirement
A. Maintain Professional Skepticism

• Maintain PS throughout the audit considering the potential for override of control notwithstanding the
auditors past experience and integrity of entity’s management and TCWG
• Accept records and documents as genuine unless condition identified – in that case confirm
directly with the third party or involve expert for authentication
B. Discussion among Engagement Team

• Discussion among the engagement team member about where the entity’s FS may be
susceptible to material misstatement due to fraud
C. Risk Assessment Procedures and Related Activities – OBEJCTIVE 01 – How to identify

and Assess the ROMM due to FRAUD
C1. Inquiry with the management:
• Management process for identifying and responding to the risk of fraud

• Management assessment of the risk that FS are materially misstated
• Management communication to TCWG regarding its process
• Management communication to its employees regarding business practice and ethical behavior
C2. Inquiry with Internal Audit
• Whether they have knowledge of any actual, suspected or alleged fraud affecting the entity, and
to obtain its views about the risks of fraud.
C3. Those Charged With Governance
• Obtain an understanding – how TCWG exercise oversight the management process for
identifying and responding to risk of fraud
C4. Unusual or unexpected relationship identified
• Perform preliminary analytical procedures to identify unusual or unexpected relationship
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C5. Consider fraud risk factor
• Fraud risk factor may not indicate risk of fraud – they often present in circumstances where fraud
have occurred
• 3 categories of fraud risk factors:
o An incentive or pressure to commit fraud
o A perceived opportunity to commit fraud
o An ability to rationalize the fraudulent action
D. Identify and Assess the ROMM due to fraud at FS level and at assertion level – OBJECTIVE
02
• Presumed Significant risk due to fraud on revenue recognition- Material
misstatement due to fraudulent financial reporting relating to revenue
recognition often results from an overstatement of revenue through for
example, premature revenue recognition or recording of fictitious revenues. It
may result also from an understatement of revenue through for example
improperly shifting revenues to a later period. The risk of fraud in revenue
recognition may be greater in some entities than others. For example, there
may be pressure or incentive on management to commit fraudulent financial
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reporting through inappropriate revenue recognition in case of listed entities.
The presumption that there are risks of fraud in revenue recognition may be
rebutted. For example, the auditor may conclude that there is no risk of
material misstatement due to fraud relating to revenue recognition in the case
where a there is a single type of simple revenue transaction, for example,
leasehold revenue from a single unit rental property.
• Presumed Significant risk on MOC- Management is in a unique position to perpetrate

fraud because of management’s ability to manipulate accounting records and prepare
fraudulent financial statements by overriding controls that otherwise appear to be
operating effectively. Due to the unpredictable way in which such override could occur, it
is a risk of material misstatement due to fraud and thus a significant risk
TECHNIQUES FOR MOC
• Recording fictitious journal entries particularly close to the end of an accounting period,
to manipulate operating result
• Inappropriately adjusting assumptions and changing judgments used to estimate
account balances
• Engaging in complex transaction
• Concealing or not disclosing, facts that could affect the amounts recorded in the
financial statements.
• Altering records and terms related to significant and usual transactions.
• Omitting, advancing or delaying recognition in the financial statements of events and
transactions that have occurred during the reporting period.
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E. Responses to the assessed ROMM due to fraud – OBJECTIVE 02
At FS level • Assign and supervise personnel having knowledge, skill and ability of the individual;
• Evaluate selection and application of Accounting policy
• Incorporate element of unpredictability in the selection of nature, timing and extent of
audit procedures
At assertion • Change the nature, timing and extent of audit procedures

level
Management • Test the appropriateness of JE
Override of • make inquiries of individual involved in FRP about inappropriate or
Control unusual activity relating to processing of JE
• Select JE and other adjustment made at the end of a reporting period
• Consider the need to test JE and other adjustments through out the
period
• Review accounting estimate for biases and evaluate whether the circumstances
producing the bias, if any, represent a ROMM due to fraud. In performing the
review the auditor shall
• whether judgement are reasonable - whether represents a ROMM due
to fraud
• Perform a retrospective review of management judgements and
assumptions reflected in the financial statements of the prior
period
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• Evaluate business rational for significant transaction outside the normal course of
business
F. Evaluation of Audit Evidence - OBJECTIVE
If the auditor identifies misstatement Auditor shall evaluate implication on other aspect of audit – reliability of
and has an indication of fraud management representation because fraud is
unlikely to be an isolated occurrence
If the auditor identifies • Reevaluate the assessment of ROMM due to fraud
misstatement whether material or not • Its resulting impact on nature, timing and extent of audit procedures to
and has reason to believe that it is or respond to the assessed risk
may be the result of fraud and • Reliability of evidence previously obtained may be called into question
management in particular senior • There may be doubts about the completeness and truthfulness of
management involved the representation made
• May consider to withdraw
• Communicate to TCWG and regulatory authorities after obtaining
legal advice
If the auditor is confirm or unable to • Evaluate the implication for audit
conclude whether FS are materially
misstated as a result of fraud
G. Auditor unable to Continue the Engagement
Example:
• Entity does not take appropriate action

• Audit test indicate significant risk of material and pervasive fraud
• Significant concern about competence or integrity of management or those charged
with governance
If a result of MM resulting from fraud or suspected fraud that brings into question auditors ability to
continue performing the audit. The auditor shall
• Determine the professional and legal responsibility

• Consider whether it is appropriate to withdraw
• If withdraw – discuss with appropriate level of management and determine whether there
is a professional or legal requirement
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Examples of Circumstances that Indicate the Possibility of Fraud
The following are examples of circumstances that may indicate the possibility that the financial
statements may contain a material misstatement resulting from fraud.
Discrepancies in the accounting records, including:
• Transactions that are not recorded in a complete or timely manner or are improperly recorded as to
amount, accounting period, classification, or entity policy.
• Unsupported or unauthorized balances or transactions.
• Last-minute adjustments that significantly affect financial results.
• Evidence of employees’ access to systems and records inconsistent with that necessary to perform their
authorized duties.
• Tips or complaints to the auditor about alleged fraud.
Conflicting or missing evidence, including:
• Missing documents.
• Documents that appear to have been altered.
• Unavailability of other than photocopied or electronically transmitted documents when documents in
original form are expected to exist.
• Significant unexplained items on reconciliations.
• Unusual balance sheet changes, or changes in trends or important financial statement ratios or
relationships - for example, receivables growing faster than revenues.
• Inconsistent, vague, or implausible responses from management or employees arising from inquiries
or analytical procedures.
• Unusual discrepancies between the entity's records and confirmation replies.
• Large numbers of credit entries and other adjustments made to accounts receivable records.
• Unexplained or inadequately explained differences between the accounts receivable sub-ledger and
the control account, or between the customer statements and the accounts receivable sub-ledger.
• Missing or non-existent cancelled checks in circumstances where cancelled checks are ordinarily returned
to the entity with the bank statement.
• Missing inventory or physical assets of significant magnitude.
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• Unavailable or missing electronic evidence, inconsistent with the entity’s record retention practices or
policies.
• Fewer responses to confirmations than anticipated or a greater number of responses than anticipated.
• Inability to produce evidence of key systems development and program change testing and
implementation activities for current-year system changes and deployments.
Problematic or unusual relationships between the auditor and management, including:
• Denial of access to records, facilities, certain employees, customers, vendors, or others from
whom audit evidence might be sought.
• Undue time pressures imposed by management to resolve complex or contentious issues.
• Complaints by management about the conduct of the audit or management intimidation of
engagement team members, particularly in connection with the auditor’s critical assessment
of audit evidence or in the resolution of potential disagreements with management.
• Unusual delays by the entity in providing requested information.
• Unwillingness to facilitate auditor access to key electronic files for testing throughthe use of
computer-assisted audit techniques.
• Denial of access to key IT operations staff and facilities, including security, operations, and
systems development personnel.
• An unwillingness to add or revise disclosures in the financial statements to make them more
complete and understandable.
• An unwillingness to address identified deficiencies in internal control on a timely basis.
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Other
• Unwillingness by management to permit the auditor to meet privately with those charged with
governance.
• Accounting policies that appear to be at variance with industry norms.
• Frequent changes in accounting estimates that do not appear to result from changed circumstances.
• Tolerance of violations of the entity’s code of conduct.
Autumn 2018
Spring 2018
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Autumn 2017
Autumn 2016 Q.2
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Summer 2016 Q.3 (b)
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Summer 2015 Q.9

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Autumn 2014 Q.3 (a)
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Autumn 2010 Q.1
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Autumn 2009 Q.2
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ISA 315: IDENTIFY AND ASSESS THE RISK OF MATERIAL MISSTATEMENT THROUGH
UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT
SCOPE: OBJECTIVE:
The objective of the auditor is to identify and assess the

Auditors responsibility to identify and assess
risks of material misstatement, whether due to fraud or error,
the ROMM in the FS through:
at the financial statement and assertion levels, through
Understanding the entity and its environment understanding the entity and its environment, including the
including its internal control entity’s internal control, thereby providing a basis for
designing and implementing responses to the assessed
risks of material misstatement.
PURPOSE OF OBTAINING THE

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UNDERSTANDING OF THE ENTITY AND

ITS ENVIRONMENT INCLUDING ITS
INTERNAL CONTROL
Considering the
Determining appropriateness of Responding to Evaluating the
materiality in the selection and Developing the assessed sufficiency and
accordance application of expectations risks of material appropriateness of
with ISA 320 accounting policies, for use when misstatement, audit evidence
and the adequacy of Identifying areas performing including obtained, such as the
financial statement where special audit analytical designing and appropriateness of
disclosures consideration may be procedures performing assumptions and of
necessary further audit management’s oral
procedures to and written
obtain sufficient representations
appropriate audit
evidence
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FIRST OBJECTIVE: How to Identify and assess the Risk of Material Misstatement
UNDERSTANDING THE ENVIRONEMNT
a. Relevant industry, regulatory and other external factors including the AFRF
REGULATORY
INDUSTRY:
Relevant regulatory factors include the regulatory OTHER EXTERNAL
Relevant industry factors environment. The regulatory environment encompasses, FACTORS
include industry conditions among other matters, the applicable financial reporting
Examples of other external
such as the competitive framework and the legal and political environment.
factors affecting the entity that
environment, supplier and Examples of matters the auditor may consider include:
the auditor may consider include
customer relationships, and
the general economic
technological developments.
• Accounting principles and industry-specific practices. conditions, interest rates and
Examples of matters the
availability of financing, and
auditor may consider include: • Regulatory framework for a regulated industry.
inflation or currency revaluation.
• The market and competition, • Legislation and regulation that significantly affect the
including demand, capacity, entity’s operations, including direct supervisory activities.
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and price competition.
• Taxation (corporate and other).
• Cyclical or seasonal activity.
• Government policies currently affecting the conduct of the
• Product technology relating entity’s business, such as monetary, including foreign
to the entity’s products. exchange controls, fiscal, financial incentives (for example,
government aid programs),and tariffs or trade restrictions
• Energy supply and cost.
policies.
b. Nature of the Entity including:
Ownership and Types of investment The way that the

Operation governance including special entity is structured
structure purpose entities and how it is
financed
c. The entity’s selection and application of d. The entity’s objectives and strategies,
accounting policies, including the reasons for e. The measurement and review of the entity’s
and those related business risks that
changes thereto. The auditor shall evaluate financial performance
may result in risks of material
whether the entity’s accounting policies are
misstatement.
appropriate for its
business and consistent with the applicable
financial reporting framework and accounting
policies used in the relevant industry
Business risks are risks occurring as a result of significant conditions, events, circumstances, actions or
inactions that could affect an entity’s ability to reach its objectives and carry out its strategies. Business risks can
also occur as a result of setting of inappropriate objectives, strategies or goals.
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2n Step: Link the risk to assertion level financial statement level to provide a basis for designing
and performing further audit procedures
Assertion level
What is Assertion? FS level
Representations by management,
explicit or otherwise, that are embodied Risks of material misstatement at the
in the financial statements, as used by financial statement level refer to risks
the auditor to consider the different that relate pervasively to the financial
types of potential misstatements that statements as a whole and potentially
may occur. affect many assertions
Example of risk at FS level

What is risk at Assertion level
Risk at assertion level are those
which relate to specific objective of
the financial statements Management override of control
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Going concern
Why risk at assertion level
Concerns over the Management
integrity
Risks of material misstatement at the assertion level for
classes of transactions, account balances, and disclosures Management lack competence
need to be considered because such consideration directly Concern about the condition and
assists in determining the nature, timing and extent of further reliability of an entity’s records
audit procedures at the assertion level necessary to obtain
sufficient appropriate audit evidence.
How to obtain UNDERSTANDING OF THE ENTITY AND ITS ENVIRONMENT INCLUDING ITS
INTERNALCONTROL
RISK ASSESSMENT PROCEDURES

The audit procedures performed to obtain an understanding of the entity and its environment, including the entity’s internal control, to
identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels
INQUIRY
ANALYTICAL PROCEDURES
Inquiries of management, of appropriate Analytical procedures may help
individuals within the internal audit identify the existence of unusual OBSERVATION AND INSPECTION
function (if the function exists), and of transactions or events, and amounts, Observation and inspection may
others within the entity who in the ratios, and trends that might indicate support inquiries of management and
auditor’s judgment may have information matters that have audit implications. others, and may also provide
that is likely to assist in identifying risks of Unusual or unexpected relationships information about the entity and its
material misstatement due to fraud or that are identified may assist the environment.
error auditor in identifying risks of material
misstatement, especially risks of
material misstatement due to fraud
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Additional procedure to be performed
• Engagement Partner and other team member shall discuss the susceptibility of entity’s FS to material misstatement
• Engagement partner knowledge on other clients
• Information obtained during client acceptance or continuance process
OBJECTIVE 02: How to ASSESS the ROMM?
Risk can be classified in to Normal risk and significant risk
What is significant risk?
An identified and assessed risk of material misstatement that, in the auditor’s judgment, requires special audit consideration.
In exercising judgment as to which risks are significant risks, the auditor shall consider at least the following
Whether the risk is The degree of Whether the risk

related to recent The Whether the subjectivity in involves significant
Whether the risk is significant complexity of risk involves the transactions that
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a risk of fraud economic, transactions significant measurement are outside the
accounting or other transactions of financial normal course of
developments and, with related information business for the
therefore, requires parties such as entity, or that
specific attention accounting otherwise appear
estimates to be unusual
REVISION OF RISK ASSESSEMENT
The auditor’s assessment of the risks of material misstatement at the assertion level may change during the course of the audit as
additional audit evidence is obtained. In circumstances where the auditor obtains audit evidence from performing further audit
procedures, or if new information is obtained, either of which is inconsistent with the audit evidence on which the auditor o riginally
based the assessment, the auditor shall revise the assessment and modify the further planned audit procedures accordingly.
WHAT TO DOCUMENT
Key elements of the

understanding obtained
The discussion among regarding each of the
the engagement team aspects of the entity and its The identified and assessed
environment and each risk of material The risk identified, and
about the susceptibility
internal control component, misstatement at financial related control about which
of the entity’s financial
statement level and the auditor has obtained an
statements to material the sources of information
from which the assertion level understanding
misstatement and
decision reached understanding was obtained
and the risk assessment
procedure performed
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THEORY BASED QUESTIONS
SUMMER 2015
SUMMER 2014
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SCENARIO BASED QUESTIONS
Autumn 2018
Summer 2017
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Spring 2016
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Autumn 2015
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Spring 2012
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ISA 320 – MATERIALITY
ISA 320 – MATERIALITY
SCOPE
Auditor’s responsibility to apply the concept of materiality appropriately in planning and performing an audit
of Financial Statements
What is Materiality?
As an auditor, our objective is to provide level of confidence to the user of the financial statements. Therefore,
when auditor is determining materiality the auditor should consider what could be material for user not
management.
DEFINITION OF MATERIALITY
(02) “Misstatement, including omissions, are considered to be material if they, individually or in aggregate,
could reasonably be expected to influence the economic decision of the users taken on the basis of the
Financial statement.”
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Exam Tip: Never use the word like we “calculate” the materiality. It’s not the clerical exercise. We always
“determine” materiality because it is a matter of professional judgement.
(4) The auditor’s determination of materiality is a matter of professional judgment, and is affected by the
auditor’s perception of the financial information needs of users of the financial statements. In this context, it is
reasonable for the auditor to assume that users:
• Have a reasonable knowledge of business and economic activities and accounting and a willingness to
study the information in the financial statements with reasonable diligence;
• Understand that financial statements are prepared, presented and audited to levels of materiality;
• Recognize the uncertainties inherent in the measurement of amounts based on the use of estimates, judgment
and the consideration of future events; and
• Make reasonable economic decisions on the basis of the information in the financial statements
Determining Materiality
If the determination of materiality is not the mechanical exercise then how should we determine materiality?
STEPS FOR DETERMING MATERIALITY
• STEP 01: Understand the ownership structure and users of the financial statements.
• STEP 02: Determine the elements of the financial statements.
• STEP 03: Identify the benchmark of most importance to users
• STEP 04: Determine the appropriate percentage to apply to the selected benchmark
• STEP 05: Determine performance materiality
STEP 01: Understand the ownership structure and users of the financial statements:
As per the definition of materiality, auditor consider what could be material for USER. So the first step to
determine materiality is to understand and identify who is the user of the financial statement.
Materiality is initially determined at planning stage so during that phase had we ever consider who are the
user of the FS? As per ISA 315 Auditor is required to obtain an understanding of the entity and its economic
environment, the industry in which it operates, its ownership structure including the means by which
the entity is financed to determine the users of the financial statements
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Auditor shall also consider who receives or uses the financial statements and why an audit is required Common
examples of primary users of the financial statements may include shareholders and debt holders.
Example 01:
As an audit Partner, you are planning the audit of A Company. While obtaining the understanding of the entity
and its environment you came across with the following facts.
• Company is a listed entity

• Company does not have any external borrowing
Based on the above facts Engagement Partner has concluded that User of the financial statements are
shareholders
Example 02:
As an audit Partner, you are planning the audit of Company B. While obtaining the understanding of the entity
• Company is a listed entity

• Company had obtained heavy financing from Banks
• Debt equity ratio is 80: 20
Banks / Lenders
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Example 03:
As an audit Partner, you are planning the audit of Company C. While obtaining the understanding of the entity
• Company is the non for profit organization

• Company’s business is to provide the education service to the Pakistan
• Company is not listed neither obtained loans from banks
member / trustee of the Company
STEP 02: Determine the elements of the financial statements.
In the Step 01 we have determined the user of the financial statement. Now the next step is to determine the
elements of financial statements such as PPE, Inventory, Borrowings, Intangible, Net asset, Total Asset,
Revenue, Gross Profit, Expenses etc.
Example 04:
If we are doing the audit of Bank, PPE and Inventory may not be the elements of the financial statements
therefore we could not determine materiality based on the PPE and Inventory.
Example 05:
If we are doing the audit of Manufacturing Company, PPE and Inventory might be the elements of the financial
statements therefore we may determine materiality based on the PPE and Inventory.
STEP 03: Identify the benchmark of most important to users
As in the step 02 there are so many elements of the financial statements. To determine the benchmark
requires careful consideration of available information on the focus of the users of the financial statements.
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Example 06:
The engagement team of Company A is in the planning phase. One of the key phase of planning is to
determine materiality. While obtaining the understanding of the entity and its environment you came across
with the following facts.
• The entity is a listed entity in the textile business.

• The Company does not have any significant borrowing from lenders / banks
• As per the draft financial statement, Company has reported the profit
• The Company has history to pay dividend
The engagement partner has determined that due to the fact that the entity is listed and does not have any
extensive borrowing therefore user of the financial statements are shareholder and shareholder focus more on
Profit before tax. It is the most appropriate benchmark for the user because economic decision of the user
such as sale and purchase of shares and dividend income are based on profit before tax.
Example 07:
The engagement team of Company B is a listed entity that engaged in the business of power generation. While
obtaining the understanding of the entity and its environment you came across with the following facts.
• It has been investing heavily in plant and machinery over the past years
• The investment has been financed ongoing through borrowings from banks.
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Based on the above facts and circumstances, the engagement partner using the professional judgement has
determined that user of the financial statements are lenders / banks.
The main focus of the readers of the entity’s financial statements is net assets because if the company fails to
repay the loan the bank may recover the amount by selling the assets of the Company.
Benchmark Justification
Profit Before Tax • Listed entity with issued equity securities
• Dividend paying entity
• Profit oriented entity
Revenue • Not for profit entity
• A company incurring losses
Cash flow from operation • Where primary user is bank and focused on the ability of the entity to repay
Expenses • Public sector entity
• Not for profit entity
Net Asset • Unitholders of Mutual funds
• Company with strategic investments having various subsidiaries and
associates
Total Asset • Highly leveraged entity asses secured against financing
STEP 04: Determine the appropriate percentage to apply to the selected benchmarks
Once the appropriate benchmark is identified, a percentage is applied to assist in determination of materiality.
There is a relationship and involves the exercise of professional judgement to determine a percentage to be
applied to a chosen benchmark.
Important Note: The benchmark that has been selected should be normal and does not contain any abnormal
transaction. For e.g. the auditor has determined materiality based on profit before tax which includes material
amount of gain on disposal
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Following guidelines may assist the auditor to determine materiality.
Benchmark Percentage
Profit Before Tax 5%
Revenue 1% to 5%
Total Asset Up to 1%
Net Asset Up to 3%
Expenses 3% to 5%
Cash flow from operations 3% to 5%
Step 05: Determine Performance Materiality
Once the materiality has been determined, we determined performance materiality.
What is Performance Materiality?
(9)The amount set by the auditor at less than materiality for the financial statements as a whole to reduce to an
appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole.
(A13)Planning the audit solely to detect individually material misstatements overlooks the fact that the
aggregate of individually immaterial misstatements may cause the financial statements to be materially
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misstated, and leaves no margin for possible undetected misstatements
How to determine performance materiality
The determination of Performance Materiality involves the exercise of professional judgement and is not a
simple mechanical calculation. We determine performance materiality by deducting from materiality the total
amount of uncorrected misstatement that we anticipate identifying and that we believe management will not
correct in the financial statements.
It is affected by the:
• Auditor’s understanding of the entity and its environment

• Nature and extent of misstatements identified in previous audits and thereby auditors expectation in
relation to misstatements in the current period
• The reliability of Entity’s internal control over financial reporting
• Increased engagement risk
• Any changes in the business
Example 08:
The Engagement Partner has determined Materiality for Company A amounting to Rs.5,000,000 for the current
period audit and the engagement team is about to determine performance materiality next. Company is
engaged in the trading of high brand clothes and there have been no significant changes in the entity’s
business, internal control, risks of material misstatement or management. The entity has been our client for
the last five years and the uncorrected misstatements is approximately Rs.1,500,000 in the prior years.
The engagement team determines performance materiality to be Rs.3,500,000 (Rs. 5,000,000- 1,500,000).
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What is the use of Materiality
Materiality is considered throughout the audit such as:
Planning
(6) In planning the audit, the auditor makes judgments about the size of misstatements that will be considered
material. These judgments provide a basis for:
• Determining the nature, timing and extent of risk assessment procedures

• Identifying and assessing the risks of material misstatement; and
Performing
Determining the nature, timing and extent of further audit procedures
Concluding
Evaluating the effect of uncorrected misstatements, if any, on the financial statements and in forming the opinion in
the auditor’s report.
Materiality level for particular class of transaction, account balance and disclosure
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If, in the specific circumstances of the entity, there is one or more particular classes of transactions, account
balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements
as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial statements, the auditor shall also determine the materiality level or levels to be applied to those
particular classes of transactions, account balances or disclosures.
Factors that may indicate the existence of one or more particular classes of transactions, account balances or
disclosures for which misstatements of lesser amounts than materiality for the financial statements as a
whole could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial statements include the following:
• Whether law, regulation or the applicable financial reporting framework affect users’ expectations regarding
the measurement or disclosure of certain items (for example, related party transactions, and the
remuneration of management and those charged with governance).
• The key disclosures in relation to the industry in which the entity operates (for example, research and
development costs for a pharmaceutical company).
• Whether attention is focused on a particular aspect of the entity’s business that is separately disclosed
in the financial statements (for example, a newly acquired business).
Example 09:
You are in the planning phase and have determined the materiality of Rs. 5,000,000. While reviewing the draft
financial statement you came across with a disclosure that company has acquired new business. The
Investment appearing in the balance sheet is amounting to Rs. 1,500,000.
The engagement Senior is of the view that amount is immaterial to the financial statement as a whole,
however Engagement Partner briefed that although amount is immaterial but as the company has acquired
new business during the year therefore user of the financial statement focus on new business therefore a
separate materiality for investment in new business shall be determined.
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Revision as the audit progress
The auditor shall revise materiality for the financial statements as a whole (and, if applicable, the materiality level
or levels for particular classes of transactions, account balances or disclosures) in the event of becoming aware
of information during the audit that would have caused the auditor to have determined a different amount (or
amounts) initially.
Reasons for change in materiality
• Result of change in circumstances that occurred during the audit (for e.g. a decision to dispose a major
part of the entity’s business
• New information
• Change in the auditors understanding of the entity and its operation as a result of performing further
audit procedures
For e.g. if during the audit it appears as though actual financial result are likely to be substantially different
from the anticipated period-end financial result that were used initially to determine materiality for the
financial statement as a whole, the auditor revises that materiality.
Example 10:
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The Engagement team has determined the materiality in the planning phase based on profit before tax.
Subsequently management informed to the audit team that Company has loss a case in the Court therefore
provision should be recorded hence the profitability has been converted into losses.
Based on the information the engagement partner has revised the materiality based on the revenue.
Documentation
The auditor shall include in the audit documentation the following amounts and the factors considered in their
determination
• Materiality for the financial statements as a whole

• If applicable, the materiality level or levels for particular classes of transactions, account balances or
disclosures
• Performance materiality
• Any revision of Materiality and Performance Materiality as the audit progressed
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Autumn 2017
Summer 2016
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Autumn 2014
Spring 2010
Spring 2019
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ISA 500
AUDIT EVIDENCE
SCOPE
OBJECTIVE
This ISA Explain what constitutes audit
evidence in an audit of FS, and deals To design and perform audit procedures in
with the auditor’s responsibility to such a way to enable the auditor to obtain
design and perform audit procedures SAAE to be able to draw reasonable
to obtain SAAE conclusions on which to base the auditor’s
opinion.
• to be able to draw reasonable
conclusion on auditor’s opinion.
WHAT IS SUFFICIENT APPROPRIATE AUDIT EVIDENCE?
The auditor shall design and perform audit procedures that are appropriate in the circumstances for the purpose of
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obtaining sufficient appropriate audit evidence.
Sufficient
The measure of the quantity of audit
evidence.
Depends on
Internal Risk assessment Quality of audit Materiality

Controls evidence
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Appropriateness
The measure of the quality of audit evidence; that is, its relevance and its reliability in
providing support for the conclusions on which the auditor’s opinion is based.
Depends on
Relevance Reliability
Relevance deals with the logical connection with, or bearing The reliability of information to be used as audit evidence,
upon, the purpose of the audit procedure and, where and therefore of the audit evidence itself, is influenced
appropriate, the assertion under consideration. by its source and its nature
The relevance of information to be used as audit evidence
may be affected by the direction of testing.
For example For example
The reliability of audit evidence is increased when it is

Directional testing obtained from independent sources outside the entity.
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Assertion
• When testing for When testing of
overstatement in the assertions, inspection of The reliability of audit evidence that is generated internally
existence or valuation of documents related to the is increased when the related controls, including those
accounts payable, testing collection of receivables over its preparation and maintenance, imposed by the
the recorded accounts after the period end may entity are effective.
payable may be a relevant provide audit evidence
audit procedure. regarding existence and Audit evidence obtained directly by the auditor is more
• When testing for valuation, but not reliable than audit evidence obtained indirectly or by
understatement in the necessarily cutoff. inference
existence or valuation of Similarly, the existence
accounts payable, testing of inventory, is not a Audit evidence in documentary form, whether paper,
the recorded accounts substitute for obtaining electronic, or other medium, is more reliable than evidence
payable would not be audit evidence regarding obtained orally
relevant, but testing such another assertion.
information as subsequent Audit evidence provided by original documents is more
disbursements, unpaid reliable than audit evidence provided by photocopies or
invoices, suppliers’ facsimiles, or documents that have been filmed, digitized or
statements, and unmatched otherwise transformed into electronic
receiving reports may be
Audit evidence
Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based. Audit
evidence includes both information contained in the accounting records underlying the financial statements and
other information.
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Audit Procedures for Obtaining Audit Evidence

As required by, and explained in, ISA 315 (Revised) and ISA 330, audit evidence to draw reasonable conclusions on
which to base the auditor’s opinion is obtained by performing:
Risk assessment procedures Test of Controls Substantive procedures
The following audit procedures may be used as risk assessment procedures, tests of controls or substantive
procedures, depending on the context in which they are applied by the auditor.
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Information Produced by the Entity and Used for the Auditor’s Purposes
When using information produced by the entity, the auditor shall evaluate whether the information is sufficiently reliable for
the auditors purpose, including as necessary in the circumstances:
• Obtaining audit evidence about the accuracy and completeness of the information:
• Evaluating whether information is sufficiently precise and detailed for the auditors purpose
Example
The effectiveness of auditing revenue by When auditor intends to test a population for a
applying standard prices to records of sales certain characteristic, the results of the test will
volume is affected by the accuracy of the price be less reliable if the population from which
information and the completeness and accuracy items are selected for testing is not complete.
of the sales volume data.
Inconsistency in, or Doubts over Reliability of, Audit Evidence
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When:
• audit evidence obtained from one source is inconsistent with that obtained from another; or
• the auditor has doubts over the reliability of information to be used as audit evidence,
Example
Responses to inquiries of those

charged with governance made to
Responses to inquiries of
corroborate the responses to
management, internal auditors,
inquiries of management are
and others are inconsistent
inconsistent with the response by
management.
The auditor shall determine what modifications or additions to audit procedures are necessary to resolve
the matter, and shall consider the effect of the matter, if any, on other aspects of the audit.
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Trade Receivable
Assertion Procedures
General • Obtain the list of receivable as at year end
Procedures • Match the receivable listing with the GL
Existence • Select the sample from receivable register and send confirmation
• For the confirmation received, assess the reliability of the confirmation
received
Completeness • Obtain the list of Goods Delivery Note which must be sequentially numbered
• For the sample selected from the list of Goods Delivery Note, trace it to receivable listing
Rights and • After assessing reliability, match the balance with receivable listing
Obligation • In case of difference, obtain the reconciliation from the management
• Inspect supporting documents such as invoice, GDN,credit note and bank statement to
test reconciling items
• In case confirmation not received, perform alternative testing such as subsequent receipt
and invoices / GDN issued during the year.
Valuation • Obtain an understanding of management process to record provision and ensure that it is
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Procedures for consistent with the AFRF

irrecoverable • Perform test of controls on provision recorded by the management
receivable • Review any correspondence of the Company with the customers and lawyers that deals
with unpaid or disputed debts
• Obtain the aging of receivable
• Match the balance with the GL and receivable listing
• Recalculate the aging of receivable
• Obtain management working for provision for doubtful debt
• Check that whether assumption, estimates and judgement used by the management are
reasonable
• Inspect subsequent receipts to assess the recoverability of balance
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Trade Payable
General • Obtain the list of trade creditors as at year end

Procedures • Match the balance with the GL
Existence • Select sample from trade payable listing (selection of nil balances and low
balances) is important), send confirmation
• For the responses received assess the reliability of confirmation received
Completeness • Match the creditor list with the GL

• Obtain the list of GRN
• Select a sample from GRN and trace it to payable account
• Review the list of account balances who are not in the listing of trade payables but
who could be expected to be in the listing
• Compare the list of trade payables balances with the listing that was prepared for
the previous year audit
• Perform test of unrecorded liability
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Rights and • After assessing the reliability, match the amount of confirmation with the list of
obligation & creditors
valuation • In case of differences / exception, obtain the reconciliation from the management
• Perform procedures on reconciling items such as Invoice, GRN and bank statement
• In case confirmation not received, perform alternative testing (subsequent
disbursement and invoices)
Valuation • Same procedures as above – confirmation procedures.
CASH and BANK Balances
General • Obtain a listing of all bank accounts which were open at any point during the period being
Procedures audited
• Match the balance with the GL
Existence • Send bank confirmation to 100%item

• If the confirmation received, assess the reliability
Completeness • Make inquiries of management / those charged with governance and search for any
evidence of additional bank accounts such as review minutes of the meeting of Board of
Directors
• For the confirmation received, review the replies received to evaluate whether
outstanding balance as per the confirmation agrees to the accounting records / GL
Rights and • Match the amount of GL with the Confirmation
obligation & • In case of difference, obtain the reconciliation from the management
valuation • Perform procedure on reconciling items such as subsequent clearance and cheque
Valuation • Same procedures as above – confirmation procedures
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Audit Procedures for Cash
• Obtain the list of cash physically held by the Company

• Match the amount with the GL
• Count the cash in the presence of company’s official
• After the count return the cash to management and obtain acknowledgement receipt
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Non-Current Liabilities – Bank Loan
General Procedures • Obtain the schedule of bank loan as at the year end
• Match the opening balance with the Last year audited FS
• Match the closing balance with the GL
Completeness • Make inquiries of management and search for any evidence of

additional debt such as review minutes of the meeting of Board of
Directors
• For the confirmation received, review the replies received to evaluate
whether outstanding debt as per the confirmation agrees to the
accounting records / GL
Existence • Inspect the approval from appropriate authority for the loan obtained
during the year
•
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send confirmation to 100% banks loan
• For the confirmation received, assess the integrity / reliability of the
responses received
Rights and Obligation • Match the amount appearing in GL with the Confirmation received
And valuation • In case amount differ, obtain the reconciliation from the
management
• Perform procedures on reconciling items such as bank clearance
Valuation • Perform the covenant testing to ensure that loan is appropriately

classified
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SALES
General • Obtain the schedule of sales ledger / register
procedures • Match the amount with the GL
Occurrence • Understand the impact of significant accounting policies for sales balances and
compliance with the applicable financial reporting framework. Consider whether the
accounting policies and methods for revenue recognition are appropriate and are
applied consistently.
• Select sample from sales register and inspect goods delivery note.
Cutoff • Select few samples before and after of last goods delivery note and check whether it
has been recorded in the correct accounting period
• Test whether the date of goods delivery note support the recognition of the revenue in
the correct period or not.
Accuracy • Select a sample sales register. For each selection, perform the
following:
• Inspect sales invoice to check quantity and rate
• Inspect goods delivery note to verify quantity
• Agree the rate to approved price list
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• Perform recalculation based on GDN and Approved price list

Completeness • Select a sample from GDN and trace it to sales register
•
Classification • Select a sample from sales register and inspect JV to ensure that transaction has been
recorded in sales account.
PURCHASE
General • Obtain the schedule of purchase register

procedures • Match the balance with the GL
Occurrence • Select a sample from purchase register and inspect GRN
Cutoff • Select few samples before and after of last goods received note and check whether it
has been recorded in the correct accounting period
• Test whether the date of goods received note support the recognition of the revenue in
the correct period or not.
Accuracy • Select sample from purchase register and perform For each selection, perform the
following:
• Inspect goods received note
• Inspect purchase invoice
• Perform recalculation based on GRN and purchase invoice
Completeness • Select a sample from GRN and trace it to purchase register
Classification • Select a sample from purchase register and inspect JV to ensure that transaction has
been recorded in purchase account.
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Substantive Procedures - PPE
General • Obtain Fixed asset register / schedule of tangible non-current assets

Procedures • Match the opening balance with the last year audited Financial statement
• Match the balances appearing in the fixed asset register with the General
Ledger and if not matching obtain the reconciliation
Completeness • Select sample from physical asset and trace / inspect it to fixed asset register
• Select sample from revenue expenditure account and Inspect the supporting
documents such as invoices to identify any such expenditure which pertains
to capital nature and therefore should be capitalized.
• Select a sample of disposal and Inspect the relevant documentation such as
invoices, authorization and approval to ensure that disposal has not been
recorded in error.
Existence • Select sample from the fixed asset register (closing asset) and
inspect the asset to determine whether the asset exists.
Rights and • Select sample from addition during the year and for the sample selected
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Obligation Inspect supporting documents such as invoices, title deeds and etc.
Valuation • Select a sample of addition of fixed assets from the fixed asset register and
inspect relevant documents such as invoice to evaluate whether the
additions pertains to capitalized nature.
• Obtain an understanding of the entity’s depreciation policy
• Review depreciation rates for reasonableness
• Perform substantive analytical procedures to test depreciation expense to
evaluate whether the fixed assets have been depreciated at the appropriate
rate and using the depreciation methodology in accordance with the entity’s
accounting policy
• Recalculate the depreciation
• Obtaining an understanding of management process related to identifying,
estimating and recording impairment for fixed assets to determine whether
it is consistent with the requirement of IAS 36.
• Obtain management’s calculation to write down fixed asset to their
recoverable value and check that whether management methods and
assumptions (discount rate, future cash flow etc are reasonable
• Test the operating effectiveness of control over recording of impairment
• Recalculate the impairment working
• Ensure that disclosure are adequate as per the requirement of IAS 16 and IAS
36
For • Obtain the revaluation report

revaluation • Match the balance appearing in revaluation report with the Financial
statement / GL
• Ensure that all the assets for similar class are revalued
• Evaluate the competence, capabilities and objectivity of management expert
• Obtain an understanding of the work of that expert
• Evaluate the adequacy of the expert work by ensuring that:
o Finding and conclusion are relevant and reasonable
o Assumptions are reasonable
o Source of date is complete and accurate
• Considering the need to use the auditor expert
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Winter 2017 – Suggested Answer by MI - SUbstatntive procedures for Goodwill - Business combination
• Inspect the purchase agreement to check the:

o Amount of consideration
o Number of shares acquired
o Acquisition date
• Inspect the bank statement to ensure that amount has been transferred
• Inspect the CDC statement to ensure that shares exist and are in the name of the Company
• Obtain valuation report from the management and match the amount
• Evaluate the competency, capability and objectivity/independence of the Management expert
• Evaluate the adequacy of the expert work :
o Relevance and reasonableness of the expert finding
o Relevance and reasonableness of the assumption and methodology used
o The relevance, completeness and accuracy of source data
• May consider to use the auditor expert
• Ensure that carrying amount and fair value of remaining asset are approximately same by inquiring
with the management or engaging expert
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• Ensure that fair value of NCI is calculated correctly and accurately by using appropriate rate
• Understand the management process for recording impairment of goodwill if any
• Test operating effectiveness of controls over recording of impairment
• Ensure that assumption used by the management are reasonable such as discount rate and future
cash flow
• Perform subsequent event procedures such as inspection of subsequent interim Financial
statement and compare the projected result with the actual result
• Obtain written representation from management that assumptions are reasonable
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Accruals
ASSERTIONS PROCEDURES
General • Obtain the listing of accruals as at year end
Procedures • Match the balance with the GL
Existence • Inspect the subsequent invoice to trace the amount, date and client
Rights and name to ensure the existence, obligation and valuation of accruals
obligation
Valuation
Completeness • Compare the list of accruals with the list obtain in last years and inquire
if any accruals appearing in last year but not appearing in current year
listing
• Review the list of accrual based on auditor’s knowledge of business
Provision – not pertaining to legal cases such as warranty,
ASSERTION PROCEDURES
General Obtain the listing of provision as at year end
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Procedures Match the balance with the GL

Existence and Inspect the supporting documents such as agreement and etc
rights and
obligation
Completeness • Compare the list of provisioning with the list obtain in last years and
inquire if any provision appearing in last year but not appearing in
current year listing
Valuation • Management process – consistent with IAS 37

• Test operating effectiveness of controls
• Ensure that assumptions are reasonable
• Subsequent event procedures
•
Provision pertaining to legal cases
General Obtain the listing of provision as at year end
Procedures Match the balance with the GL
Existence, • Inquiry of management including in-house legal counsel to obtain an
obligation and understanding of the legal cases
valuation • Inspect correspondence between the entity and its external legal
counsel
• Send direct confirmation to the external legal counsel to know the
outcome of the case
• Ensure that any provision has been appropriately recorded as per IAS
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37
Completeness • Compare the list of provisioning with the list obtain in last years and
inquire if any provision appearing in last year but not appearing in
• Reviewing legal expense account to identify any other litigation and
claims
• Inspect minutes of the meeting of TCWG
Contingent liabilities
General Obtain the listing of contingent as at year end
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Procedures
Existence, • Inquiry of management including in-house legal counsel to obtain an
obligation and understanding of the legal cases
valuation • Inspect correspondence between the entity and its external legal
counsel
• Send direct confirmation to the external legal counsel to know the
outcome of the case
• Ensure that any contingent liability has been appropriately recorded as
per IAS 37
Completeness • Compare the list of contingencies with the list obtain in last years and
inquire if any contingencies appearing in last year but not appearing in
• Reviewing legal expense account to identify any other litigation and
claims
• Inspect minutes of the meeting of TCWG
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Summer 2016
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Autumn 2013
Autumn 2010
Autumn 2016
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ISA 505 - EXTERNAL CONFIRMATIONS
SCOPE OBJECTIVE
Auditor use of external confirmation procedures to Design and perform external confirmation procedure
obtain audit evidence to obtain relevant and reliable audit evidence
Evaluating the Evidence Obtained

The auditor shall evaluate whether the results of the external confirmation procedures provide relevant and reliable
audit evidence, or whether further audit evidence is necessary.
WHAT IS EXTERNAL CONFIRMATIONS?
Audit evidence obtained as a direct written response to the auditor from a third party in paper form, or by electronic or
other medium.
Relationship between audit evidence and External confirmation

• Audit evidence is more reliable when it is obtained from independent sources.
• Audit evidence is more reliable when it is obtained directly by the auditor.
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• Audit evidence is more reliable when it exists in documentary form e.g. Paper, electronic or other medium.
ISA 330 – Confirmation is best for those risk which are assessed as high
ISA 240 – to address the risk of fraud at assertion level
External Confirmation Procedures

Auditor shall maintain control over external confirmation requests, including:
Follow-Up on Confirmation
Selecting the appropriate Designing Confirmation Requests
confirming party requests
• Information regarding
account balances and
their elements.
• terms of agreements Responses to • properly addressed
contracts or transactions • may use blank confirmation Auditor may
confirmation
between parties requests provide • contain return information so that send an
more relevant and confirmation sent directly to auditor additional
reliable audit confirmation
evidence when request when
confirmation a reply to a
requests are sent to a previous
confirming party who request has
Determining the information is knowledgeable for not been
to be confirmed or which confirmation is received
requested requested. within a
reasonable
time.
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External confirmation
Management allowed to send confirmation?
When a response to a positive confirmation is necessary to obtain

SAAE: and alternative audit procedure will not provide audit evidence that
auditor required (for e.g. information available to corroborate management
assertion is only available outside entity & specific fraud risk factor such risk
Yes of MOC, prevent the auditor from relying on evidence from the entity). If the No
auditor does not obtain such confirmation, determine the implication for the
audit and audit opinion as per ISA 705.
Received? No • Inquire as to
management’s reasons for
the refusal, and seek audit
In the case of non- evidence as to their validity
Yes response (it may indicate and reasonableness (a
previously unidentified common reason is the
ROMM), the auditor shall existence of a legal dispute or
perform alternative audit ongoing negotiation with
procedures to obtain confirming party);
Reliability? relevant and reliable audit • Evaluate the implications
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Yes No
evidence. of management’s refusal on
Example ROMM including the ROF,
Exceptions Factors identified that may give and on the N, T and E of
• For accounts receivable
rise doubt over the reliability of balances – examining other audit procedure; and
confirmation request such as: specific subsequent cash • Perform alternative audit
YES • Was received by the auditor receipts, shipping procedures to obtain
No indirectly documentation, and sales relevant and reliable audit
• Appeared not to come from near the period end. evidence (same procedures
originally intended confirming as non response.)
No further party • For accounts payable
May indicate • Responses received balances – examining
audit
MM or electronically because proof of subsequent cash
procedures disbursements or, and
PMM. If MM If the auditor concludes that
required origin and authority of the
then check other records, such as management refusal to allow the
respondent is difficult to
whether it is goods received notes. auditor to send confirmation is
establish
indicative of unreasonable or The auditor is
fraud. unable to obtain relevant and
Exception – obtain further audit evidence to resolve those doubts such as reliable audit evidence from
may also alternative audit procedures, the
• request management for direct confirmation
indicate auditor also shall determine the
deficiency in • contacting the CP – when CP responds by electronic email
implications on the audit opinion
IC. Some • encryption and other information transmission technology after discussing with TCWG.
exception do • If received from third party – perform procedure such as – response is
not from proper source, respondent is authorized, integrity over CONFIRMATIONS
represent transmission has not compromised
MM due to
timing,
measureme
nt
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TYPES OF CONFIRMATIONS
Positive confirmation Negative confirmation

A request that the A request that the
confirming party respond confirming party respond
directly to the auditor directly to the auditor
whether agrees or only if disagrees with the
disagrees with the information provided in
information in the request the request.
Negative confirmations
Negative confirmations provide less persuasive audit evidence than positive confirmations.
The auditor shall not use negative confirmation requests as the sole substantive audit procedure to address an
assessed ROMM at the assertion level unless all of the following are present
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Auditor has assessed the The population of items Auditor is unaware
ROMM as low and has obtained subject to negative of circumstances A very low
SAAE regarding the operating confirmation procedure that would cause exception rate
effectiveness of controls comprises a large number recipient to is expected
of small, homogeneous disregard such
account balances, request
transactions or conditions
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THEORY BASED QUESTIONS
Autum 2018
Autumn 2016
Autumn 2015
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Autumn 2014
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Summer 2016
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Summer 2015
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Autumn 2011
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Summer 2017
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ISA 520: Analytical Procedures
Scope
This International Standard on

It also deals with the auditor’s ISA 315 deals with the use of
Auditing (ISA) deals with the responsibility to perform analytical
auditor’s use of analytical analytical procedures as risk
procedures near the end of the audit that assessment procedures.
procedures as substantive assist the auditor when forming an overall
procedures (“substantive conclusion on the financial statements.
analytical procedures”).
Objective
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To obtain relevant and reliable To design and perform analytical procedures near the end of the
audit evidence when using audit that assist the auditor when forming an overall conclusion as
substantive analytical procedures; to whether the financial statements are consistent with the
and auditor’s understanding of the entity.
What is Analytical Procedures

Evaluations of financial information through analysis of plausible relationships among both financial
and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified
fluctuations or relationships that are inconsistent with other relevant information or that differ from
expected values by a significant amount.
Analytical procedures include the consideration of comparisons Analytical procedures also include
of the entity’s financial information with, for example: consideration of relationships, for example:
•Comparable information for prior periods. • Among elements of financial information
•Anticipated results of the entity, such as budgets or forecasts, that would be expected to conform to a
or expectations of the auditor, such as an estimation of predictable pattern based on the entity’s
depreciation. experience, such as gross margin percentages.
•Similar industry information, such as a comparison of the •Between financial information and relevant
entity’s ratio of sales to accounts receivable with industry non-financial information, such as payroll costs
averages or with other entities of comparable size in the same to number of employees.
industry.
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Steps / Requirements for performing substantive procedures as Analytical Procedures
A. Determine the suitability of particular substantive analytical procedures for given assertions, taking
account of the assessed risks of material misstatement and tests of details, if any, for the assertions;
how effective they will be in detecting particular type of material misstatements.
B. Evaluate the reliability of data and for these auditor needs to consider the following factors:
• Source of information
• Comparability of the information such as industry data and budget
• nature and relevance of information available; and
• controls over preparation of data.
C. Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is sufficiently
precise to identify a misstatement that, individually or when aggregated with other misstatements, may cause
the financial statements to be materially misstated; For these auditor needs to consider the following factors:
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• The accuracy with which the expected results of substantive analytical procedures can be predicted.
• The degree to which information can be disaggregated.
• The availability of the information, both financial and non-financial.
D. Determine the amount of any difference of recorded amounts from expected values that is acceptable without
further investigation
The auditor’s determination of the amount of difference from the expectation that can be accepted without further
investigation is influenced by materiality and the consistency with the desired level of assurance, taking account of
the possibility that a misstatement, individually or when aggregated with other misstatements, may cause the
financial statements to be materially misstated.
ISA 330 requires the auditor to obtain more persuasive audit evidence the higher the auditor’s assessment of risk.
Accordingly, as the assessed risk increases, the amount of difference considered acceptable without investigation
decreases in order to achieve the desired level of persuasive evidence.
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E. Investigating Results of Analytical Procedures
If analytical procedures performed in accordance with this ISA identify fluctuations or relationships that are inconsistent
with other relevant information or that differ from expected values by a significant amount, the auditor shall investigate
such differences by:
(a) Inquiring of management and obtaining appropriate audit evidence relevant to management’s responses; and
(b) Performing other audit procedures as necessary in the circumstances.
The need to perform other audit procedures may arise when, for example, management is unable to provide an explanation,
or the explanation, together with the audit evidence obtained relevant to management’s response, is not considered
adequate.
Analytical Procedures that Assist When Forming an Overall Conclusion

The auditor shall design and perform analytical procedures near the end of the audit that assist the auditor when forming
an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of
the entity.
The conclusions drawn from the results of

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The results of such analytical procedures may

analytical are intended to corroborate
identify a previously unrecognized risk of material
conclusions formed during the audit of
misstatement. In such circumstances, ISA 315 (Revised)
individual components or elements of the
requires the auditor to revise the auditor’s assessment
financial statements. This assists the
of the risks of material misstatement and modify the
auditor to draw reasonable conclusions
further planned audit procedures accordingly.
onwhich to base the auditor’s opinion.
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ISA 550 – RELATED PARTIES
BACKGROUND:
ENRON SCANDAL:
•
Enron used special purpose entities—limited partnerships or companies created to fulfill a
temporary or specific purpose to fund or manage risks associated with specific assets. The
company elected to disclose minimal details on its use of "special purpose entities”.
• These related parties’ companies were created by a sponsor and had used hundreds of related
parties to hide its debt.
WHY IAASB Require the Auditor to obtain SAAE regarding Related Parties
As per ISA 700 Auditor express the following opinion:
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“In our opinion the accompanying financial statements presents fairly in all material respect in accordance
with IFRS”
WHAT IS THE RELEVANT IFRS FOR RELATED PARTY:
IAS 24: RELATED PARTY DISCLOSURES:
“The objective of this Standard is to ensure that an entity’s financial statements contain the disclosures
necessary to draw attention to the possibility that its financial position and profit or loss may have been
affected by the existence of related parties and by transactions and outstanding balances, including
commitments, with such parties.”
As management is require to disclose all the transaction with related parties therefore ISA 550 deals with
the auditor’s responsibilities relating to:
• Related party relationships and transactions in an audit of financial statements.
• Specifically, it expands on how ISA 315 (Revised), ISA 330 and ISA 240 are to be applied in
relation to risks of material misstatement associated with related party relationships and
transactions.
WHY HIGH Risk of Material Misstatement in Related Party
Auditor shall always give special consideration to related party relationship and transactions irrespective
of materiality because normally transaction with related party is qualitatively material.
There is always a high risk of material misstatement in related party relationship and transaction due to
the following reasons:
• Related parties may operate through an extensive and complex range of relationships and structures,
with a corresponding increase in the complexity of related party transactions.
• Information systems may be ineffective at identifying or summarizing transactions and outstanding
balances between an entity and its related parties.
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• Related party transactions may not be conducted under normal market terms and conditions; for
example, some related party transactions may be conducted with no exchange of consideration.
Inherent Limitation of Related Party- Management may be unaware of existence of all RP relationship
and transaction and it represent greater opportunity for fraud.
Important Note: When Enron entered into fraudulent financial reporting through its related parties
and subsequently becomes bankrupt. Serious criticism were made on the auditor of the Company
that why Auditor was unable to identify those related party relationship and transactions.
DEFINITIONS:
Arm’s length transaction - A transaction conducted on such terms and conditions as between a willing buyer and a willing seller
who are unrelated and are acting independently of each other and pursuing their own best interests.
(b) Related party - A party that is either:

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a) A person or a close member of that person's family is related to a reporting entity if that person:
• (i) has control or joint control over the reporting entity;
• (ii) has significant influence over the reporting entity; or
• (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
(b) An entity is related to a reporting entity if any of the following conditions applies:
• (i) The entity and the reporting entity are members of the same group (which means that each parent,
subsidiary and fellow subsidiary is related to the others).
• (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member
of a group of which the other entity is a member).
• (vi) The entity is controlled or jointly controlled by a person identified in (a).
• (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management
personnel of the entity (or of a parent of the entity).
• (viii) The entity, or any member of a group of which it is a part, provides key management personnel services
to the reporting entity or to the parent of the reporting entity*
OBJECTIVE of ISA 550 – RELATED PARTIES
1st objective:
To obtain an understanding of related party relationships and transactions to identify fraud risk factors, if any, arising from
related party relationships and transactions that are relevant to the identification and assessment of the risks of
material misstatement due to fraud.
2nd Objective:
To obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been
appropriately identified, accounted for and disclosed in the financial statements in accordance with the framework (See
IAS 24 objective)
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1st Objective:
Obj 01: To obtain an Understanding of related party relationship and transactions
Obj 1.1 Who is responsible to prepare FS in accordance with IFRS?
Management.
Yes, if management is responsible then to obtain an understanding of the related party relationship and
transactions, auditor shall made inquiries with the management such as:
• The identity of the entity’s related parties, including changes from the prior period;
• The nature of the relationships between the entity and these related parties; and
• Whether the entity entered into any transactions with these related parties during the period
and, if so, the type and purpose of the transactions.
As management is also responsible for design and implementation of internal control therefore auditor
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shall also inquire with the management to obtain understanding of the controls that management
has established to:
• Identify, account for, and disclose related party relationships and transactions in accordance
with the AFRF;
• Authorize and approve significant transactions and arrangements with related parties; and
• Authorize and approve significant transactions and arrangements outside the normal course of
business.
Imp Note: If the Controls are not present or ineffective then auditor will not be able to obtain
SAAE therefore modify the opinion in accordance with ISA 705.
Obj 1.2 Sharing Related Party Information

Once the auditor has obtained the understanding of related party relationship and transaction, auditor shall
discuss and share such information with the engagement team such as
• The nature and extent of the entity’s relationships and transactions with related parties,
• emphasis of maintain PS,
• circumstances or conditions of the entity that may indicate the existence of RPROT that management
has not identified or disclosed to the auditor,
• The records or documents that may indicate the existence of RPROT.
• Discussion in the context of fraud such as How SPE used to facilitate earning management and
misappropriation of asset.
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SUMMARY OF FIRST OBJECTIVE:
The auditor has obtained the understanding of the related party relationship and transactions by making
inquiry with the management and considering the control in order to identify and assess the risk of
material misstatement as per ISA 315 and ISA 240.
Obj 2.2 After performing the above-mentioned procedures, auditor may come across with the following
risk:
Risk Response
• Related party transaction may not Procedures to ensure that RPT has been appropriately
be properly account for and accounted for and disclosed
disclosed • Confirming or discussing specific aspects of the
transactions with intermediaries such as banks, law firms,
guarantors, or agents,.
•
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Confirming the purposes, specific terms or amounts of the

transactions with the related parties.
• Where applicable, reading the financial statements or other

relevant financial information, if available, of the related
parties for evidence of the accounting of the transactions in
the related parties’ accounting records.
As per ISA 315: Significant related

party transaction outside the normal For identified significant related party transactions outside the
course of business shall be treated as entity’s normal course of business, the auditor shall:
significant risk.
Example of transaction outside the • Inspect the underlying contracts or agreements, if any, and
normal course of business evaluate whether:
• Complex equity transactions o The business rationale (or lack thereof) of the
transactions suggests that they may have been
• The leasing of premises or the entered into to engage in fraudulent financial
rendering of management services reporting or to conceal misappropriation of assets;
by the entity to another party if no
consideration is exchanged. o The terms of the transactions are consistent with
management’s explanations; and
• Sales transactions with unusually
large discounts or returns. o The transactions have been appropriately
accounted for and disclosed in accordance with the
• Transactions with circular applicable financial reporting framework; and
arrangements, for example, sales
with a commitment to repurchase. • Obtain audit evidence that the transactions have been
appropriately authorized and approved
• Transactions under contracts In evaluating the business rationale of a significant related party
whose terms are changed before transaction outside the entity’s normal course of business, the
expiry. auditor may consider the following:
• Whether the transaction:
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-Is overly complex (for example, it may involve multiple related

parties within a consolidated group).
-Has unusual terms of trade, such as unusual prices, interest
rates, guarantees and repayment terms.
-Lacks an apparent logical business reason for its occurrence.
Involves previously unidentified related parties.
-Is processed in an unusual manner.
• Whether management has discussed the nature of, and
accounting for, such a transaction with those charged with
governance.
• Whether management is placing more emphasis on a
particular accounting treatment rather than giving due regard to
the underlying economics of the transaction.
If management’s explanations are materially inconsistent with

the terms of the related party transaction, the auditor is required,
in accordance with ISA 500to consider the reliability of
management’s explanations and representations on other
significant matters.
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There is a significant risk due to fraud • Inquiries with management, TCWG, RP, inspection of
Significant contract.
Transaction with the Related party During the audit, the auditor shall remain alert, when inspecting
may not have been identified or records or documents, for arrangements or other information
disclosed by the management that may indicate the existence of related party relationships or
transactions that management has not previously identified
or disclosed to the auditor.
• Bank and legal confirmations obtained as part of the

auditor’s procedures;
• Minutes of meetings of shareholders and of those charged

with governance; and
• Third-party confirmations obtained by the auditor (in addition

to bank and legal confirmations).
• Entity income tax returns.
• Information supplied by the entity to regulatory authorities.
• Shareholder registers to identify the entity’s principal

shareholders.
• Statements of conflicts of interest from management and

those charged with governance.
• Records of the entity’s investments

• Contracts and agreements with key management or those
charged with governance.
• Significant contracts and agreements not in the entity’s

ordinary course of business.
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• Specific invoices and correspondence from the entity’s

professional advisors.
• Significant contracts re-negotiated by the entity during the

period.
• Reports of the internal audit function.
Situations Audit Procedures
SITUATION 01: If the auditor identifies related parties or significant related party transactions that
management has not previously identified or disclosed to the auditor, the auditor
Identification of shall:
Previously
Unidentified or • Promptly communicate the relevant information to the other members of the
Undisclosed engagement team;
Related Parties or
Significant • Request management to identify all transactions with the newly identified
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Related Party related parties for the auditor’s further evaluation; and
Transactions
• Inquire as to why the entity’s controls over related party relationships and
transactions failed to enable the identification or disclosure of the related party
relationships or transactions;
• Perform appropriate substantive audit procedures on newly identified related

party
• Reconsider the risk that other related parties or significant related party
transactions may exist that management has not previously identified or
disclosed to the auditor, and perform additional audit procedures as necessary;
and
• If the non-disclosure by management appears intentional (and therefore

indicative of a risk of material misstatement due to fraud), evaluate the
implications for the audit as per ISA.
TIPS for Students: Procedures mentioned above are those procedures that
auditor has already performed in objective 01 (obtaining an understanding of
the related party relationship and transactions)
SITUATION 02 If the auditor identifies Significant transaction outside the entity’s

normal course of business, the auditor shall inquire of management
Identify Significant about:
transaction outside the
entity’s normal course of • The nature of these transactions (understanding the business
business rationale of the transactions and terms and conditions under which
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these have been entered into; and
• Whether related parties could be involved.
SUMMARY OF 2nd Objective:
Auditor needs to perform certain procedures to address the risk identified in objective 01
EVALUATION OF THE ACCOUNTING FOR AND DISCLOSURE OF IDENTIFIED RELATED PARTY

RELATIONSHIP AND TRANSACTIONS
After performing procedures auditor shall evaluate in forming an opinion in accordance with ISA 700:
• Whether the identified related party relationships and transactions have been appropriately accounted
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for and disclosed in accordance with the applicable financial reporting framework; and
• Whether the effects of the related party relationships and transactions:
o Prevent the financial statements from achieving fair presentation (for fair presentation
frameworks); or
o Cause the financial statements to be misleading (for compliance frameworks).
• Disclosures of related party transactions may not be understandable if:
o The business rationale and the effects of the transactions on the financial statements are
unclear or misstated; or
o Key terms, conditions, or other important elements of the transactions necessary for
understanding them are not appropriately disclosed.
Imp Note: while evaluating always remember that related party transaction are qualitatively
material
Written Representation
As already explained in ISA 580 that auditor needs to obtain specific representation on related party to
obtain Sufficient appropriate audit evidence.
• They have disclosed to the auditor the identity of the entity’s related parties and all the related party
relationships and transactions of which they are aware; and
• They have appropriately accounted for and disclosed such relationships and transactions in
accordance with the requirements of the framework.
• Circumstances in which it may be appropriate to obtain written representations from those charged
with governance include:
• When they have approved specific related party transactions that materially affect the financial
statements or involve management.
• When they have made specific oral representations to the auditor on details of certain related party
transactions.
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• When they have financial or other interests in the related parties or the related party transactions.
Assertions That Related Party Transactions Were Conducted on Terms Equivalent to

Those Prevailing in an Arm’s Length Transaction
If management has made an assertion in the financial statements to the effect that a related
party transaction was conducted on terms equivalent to those prevailing in an arm’s length
transaction, the auditor shall obtain sufficient appropriate audit evidence about the assertion.
•Comparing the terms of the related party transaction to those of an identical or similar transaction
with one or more unrelated parties.
•Engaging an external expert to determine a market value and to confirm market terms and
conditions for the transaction.
•Comparing the terms of the transaction to known market terms for broadly similar transactions on
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an open market.
•Considering the appropriateness of management’s process for supporting the assertion.
•Verifying the source of the internal or external data supporting the assertion, and testing the data
to determine their accuracy, completeness and relevance.
•Evaluating the reasonableness of any significant assumptions on which the assertion is based.
DOMINANT INFLUENCE
Indicators of dominant influence exerted by a related party includes:
• The RP has significant business decision right

• Significant transaction are referred to RP for final approval
• No debate by management or TCWG regarding business proposal initiated by the RP
• Transaction involving the RP are rarely independently review and approved
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Autumn 2018
Spring 2018
Autumn 2017
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Autumn 2016 - Q.4
Specify the procedures that an auditor should perform to ensure completeness of the list of related parties
provided by the directors. 06
As part of audit procedure you have requested the management of Energy Limited to provide specific
representation relating to completeness of related parties and related party transactions.
The management is of the view that since the auditor has carried out a detailed review in which no
undisclosed transactions were identified, a written representation is not necessary.
Required:
Evaluate the above situation, comment on the management’s stance and suggest the appropriate course
of action available to the auditor. 06
Autumn 2015 - Q.1 (c)
A schedule of related party transactions provided by the client includes two significant transactions which
are outside the normal course of business. State the substantive procedures that an auditor should
undertake, in respect of these transactions. 04
Spring 2015 – Q.6
You are the audit manager on the audit of a listed company, Kamil Limited (KL). Prior to completion of
audit, you came across a prospectus issued by Neelum Limited (NL) according to which a director of KL
is the chief executive of NL. However, the name of NL was not included in the list of related parties
provided by KL. On being confronted the management has advised that the name was omitted
inadvertently as the appointment took place just two months prior to the year end.
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Required:
Discuss your course of action in the above situation. 07
Autumn 2014 – Q.10 (i)
Give any three audit procedures to ensure completeness of list of related parties provided by the
management. 03
Spring 2014 – Q.7
While reviewing the audit working papers of Apple Limited (AL), the following matters have come to your
attention:
(i) The audit team was able to ascertain that AL has entered into a number of transactions near the year-
end with a new distributor Fruits Limited (FL), which is a related party. On being confronted, the
management has informed that since there were no transactions with FL in the past, its inclusion in the
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schedule of related party transactions was inadvertently omitted. 05
(ii) The details of related party transactions provided by the management includes a payment of Rs. 300
million to Mango Limited. The job in-charge is of the view that this transaction is not in normal course of
business of the company. 04
Required:
Analyses each of the above situations and briefly describe your course of action.
Spring 2013 – Q.5 (a)
Strong Vehicles Limited (SVL) manufactures heavy vehicles. As the job in-charge on SVL’s audit, you
have come across the following situations:
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The management had provided you with a representation that they had disclosed all the related party
transactions and relationships of which they were aware. However, before finalization of the audit, you
found that subsequent to the year-end, a payment of Rs. 100 million has been made to Strong Engines
Plc (SEP), a company incorporated in a foreign country. On your query, the management has advised
you that SEP is a foreign subsidiary of SVL and its name was not disclosed inadvertently because it had
been non-operational for the last many years. 05
Autumn 2011 – Q.5
As the auditor of a listed company with a number of related parties, what steps would you consider as
part of your audit planning to ensure that all related party relationships and transactions are identified and
disclosed in the financial statements. 13
Autumn 2010 – Q.4
Al-Shams Limited is an unquoted public company. A large part of its business is carried out with persons /
organization’s who are related to the management or the shareholders.
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Required:
(a) State any eight procedures which an auditor may perform for determining the existence of related
parties or related party transactions.08
(b) Give four examples of situations that may be indicative of dominant influence exerted by a related
party. 04
Autumn 2009 – Q.7
Describe the procedures that the auditor may perform, in order to ensure the completeness of the
information provided by the management, about related parties.
Autumn 2017
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ISA 560
SUBSEQUENT EVENT
SCOPE OBJECTIVE
Auditor’s responsibilities The objectives of the auditor are:

relating the subsequent event in (a) To obtain sufficient appropriate audit evidence
an audit of the financial about whether events occurring between the
statements. date of the financial statements and the date of
the auditor’s report that require adjustment of,
or disclosure in, the financial statements are
appropriately reflected in those financial
statements in accordance with the applicable
financial reporting framework; and
(b) To respond appropriately to facts that become
known to the auditor after the date of the
auditor’s report, that, had they been known to the
auditor at that date, may have caused the
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auditor to amend the auditor’s report.
FIRST OBJECTIVE:EVENTS OCCURRING BETWEEN THE DATE OF THE F AND THE DATE OF THE AUDITOR’S REPORT
The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the
financial statements and the date of the auditor’s report or as near as practicable that require adjustment of, or disclosure in, the financial statements have
been identified.
The auditor is not, however, expected to perform additional audit procedures on matters to which previously applied audit procedures have provided
satisfactory for e.g. subsequent receipts, payments and subsequent sale. The auditor shall take into account auditors risk assessment in determine N,T&E of
such audit procedures.
❑ The audit of receivables will consider whether receivables at the end of the reporting period are collectable. Cash receipts after
the year-end may indicate a significant non-payment, suggesting the need to write off a debt as irrecoverable.
❑ The audit of inventory includes a review of the net realisable value of inventory. Sales of inventory after the year-end may
indicate that some inventory in the balance sheet is over-valued (because subsequent events have shown that its NRV was less
than cost).
❑ A search for unrecorded liabilities may discover the existence of some unrecorded liabilities, from invoices received after the
reporting period but relating to the period covered by the financial statements.
❑ A review of the entity’s cash position at the end of the reporting period may find that a cheque from a customer, recorded as
part of the bank balances, was dishonoured after the reporting period.
Obtaining an Inquiring of management Reading minutes, if any, of

understanding of any and, where appropriate, the meetings of the entity’s
procedures management those charged with owners, management and those
Reading the entity’s latest
has established to ensure governance as to whether charged with governance that
subsequent interim financial
that subsequent events are any subsequent events have been held after the date of
statements, if any.
identified. have occurred which the financial statements and
inquiring about matters .
might affect the financial
statements discussed at any such
meetings for which minutes
are not yet available
The auditor shall request management and, where appropriate, those charged with governance, to provide a written representation
in accordance with ISA 5803 that all events occurring subsequent to the date of the financial statements and for which the
applicable financial reporting framework requires adjustment or disclosure have been adjusted or disclosed.
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Additional audit procedures or above procedures could not be performed.
Review or testing of Read the entity’s latest

accounting records or
Where no subsequent Inquire, or extend
available budgets, cash previous oral or written
transactions interim and Minutes are
flow forecasts and other inquiries, of the entity’s
occurring between prepared – inspect related management legal counsel
the date of the available books and reports for periods after concerning litigation
financial statements records including bank the date of the financial and claims
and the date of the statement. statements;
auditor’s report
The auditor may inquire as to the current status of items that were accounted for on the basis of preliminary or inconclusive data
and may make specific inquiries about the following matters:
Whether new commitments, borrowings or guarantees have been entered into.
AUDIT BY IBRAHIM
Whether sales or acquisitions of assets have occurred or are planned.
Whether there have been increases in capital or issuance of debt instruments, such as the issue of new shares or debentures, or
an agreement to merge or liquidate has been made or is planned.
Whether any assets have been appropriated by government or destroyed, for example, by fire or flood.
Whether there have been any developments regarding contingencies.
Whether any unusual accounting adjustments have been made or are contemplated.
Whether any events have occurred or are likely to occur that will bring into question the appropriateness of accounting policies
used in the financial statements, as would be the case, for example, if such events call into question the validity of the going
concern assumption.
Whether any events have occurred that are relevant to the measurement of estimates or provisions made in the financial
statements.
Whether any events have occurred that are relevant to the recoverability
of assets.
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RESULT OF PROCEDURE PERFORMED
If, as a result of the procedures performed as required, the auditor identifies events that require
adjustment of, or disclosure in, the financial statements, the auditor shall determine whether each such
event is appropriately reflected in those financial statements in accordance with the applicable financial
reporting framework
SECOND OBJECTIVE:FACTS WHICH BECOME KNOWN TO THE AUDITOR AFTER THE DATE
OF THE AUDITOR’S REPORT BUT BEFORE THE DATE OFTHE FINANCIAL STATEMENTS ARE
ISSUED
The auditor has no obligation to perform any audit procedures regarding the
financial statements after the date of the auditor’s report. However, if, after
the date of the auditor’s report but before the date the financial statements
are issued, a fact becomes known to the auditor that, had it been known to
the auditor at the date of the auditor’s report, may have caused the auditor to
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amend the auditor’s report, the auditor shall.
Important note: As explained in ISA

210, the terms of the audit
Discuss the matter with Inquire how management engagement include the agreement of
Determine whether the
management and, where intends to address the management to inform the auditor of
financial statements need
appropriate, those charged matter in the financial facts that may affect the financial
amendment and, if so,
with governance statements statements, of which management
may become aware during the period
from the date of Audit report to the
date Fs are issued.
IF MANAGEMENT AMENDS THE FINANCIAL STATEMENTS, THE AUDITOR SHALL:
Provide a new auditor’s

Carry out the audit
Extend the audit report on the amended
procedures financial statements. The new
necessary in the procedures referred
above to the date of auditor’s report shall not be
circumstances on dated earlier than the date of
the new auditor’s
the amendment. approval of the amended
report; and
financial statements
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IF MANAGEMENT DOES NOT AMENDS THE FINANCIAL STATEMENTS, THE AUDITOR SHALL
Audit report provided

Yes No
Shall notify management and TCWG not to issue financial statement to third parties before Auditor shall
necessary amendments have been made. modify opinion
as required by
If FS are nevertheless subsequently issued without the necessary amendment, the auditor ISA 705 and
shall take appropriate action to seek to prevent reliance on auditors report. then provide
The auditor’s course of action to prevent reliance on the auditor’s report on the financial auditors report
statement depends upon the auditor’s legal rights and obligation. Consequently auditors may
consider it appropriate to seek legal advice
FACTS WHICH BECOME KNOWN TO THE AUDITOR AFTER THE FINANCIAL STATEMENTS HAVE
BEEN ISSUED:
After the financial statements have been issued, the auditor has no obligation to perform any audit
AUDIT BY IBRAHIM
procedures regarding such financial statements. However, if, after the financial statements have been
issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the
auditor’s report, may have caused the auditor to amend the auditor’s report, the auditor shall:
Discuss the matter with management Determine whether the financial Inquire how management
and, where appropriate, those charged statements need amendment and, if so, intends to address the matter in
with governance the FS
IF MANAGEMENT AMENDS THE FINANCIAL STATEMENTS, THE AUDITOR SHALL:
Review the steps

Carry out taken by the
Extend the management to Provide a new The auditor shall include in the new or
the audit auditor’s report on the amended auditor’s report an Emphasis of
procedures
audit ensure that
procedures anyone in receipt amended financial Matter paragraph or Other Matter paragraph
necessary in statements. The new referring to a note to the financial statements that
referred of the previously
the above to the issued FS auditor’s report shall more extensively discusses the reason for the
circumstanc date of the together with not be dated earlier than amendment of the previously issued financial
es on the new auditor’s the auditors the date of approval of statements and to the earlier report provided by
amendment. report report thereon is the amended financial the auditor
informed of the statements
situation
IF MANAGEMENT DOES NOT TAKE NECESSARY STEPS TO ENSURE THAT ANYONE IN RECEIPT OF
PREVIOUSLY ISSUED FS IS INFORMED OF THE SITUATION AND DOES NOT AMEND THE FS, THE AUDITOR
SHALL:
Notify management and those charged with governance, that the auditor will seek to prevent future reliance on the auditor’s
report. If, despite such notification, management or those charged with governance do not take these necessary steps, the
auditor shall take appropriate action to seek to prevent reliance on the auditor’s report.
The auditor’s course of action depends upon the auditor’s legal rights and obligations. Consequently, the auditor may
consider it appropriate to seek legal advice
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DUAL DATING
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Page 88 of 341
30 June 30 Sep 03 Oct 09 Oct after FS issued
B/S date Approval date Date of Audit Fs Issued date
report No obligation to perform
Obtain SAAE no obligation to perform procedure procedure but facts
But facts known, if known at the DOAR known, if known at DOAR
Auditor may have amend AR Aud may have amend AR
By performing following (SEP): Discuss with M & TCWG Discuss with M & TCWG“
• Management process
• Inquiry whether fs needs amendment, if yes Fs needs amendment
• Reading minutes
• Latest interim FS Inquire how mgt address matter Inquire how Mgt amend
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• Budget, cash flow forecast
• Legal counsel Management amend Management amend
• Written representation
Based on the above procedure Yes Yes
Auditor identify events that audit procedure on amendment audit procedure on amendment
Require adjustment or disclosure extend SEP to the date of new AR Review the steps by M to inform
In FS new AR – must not dated earlier anyone receipt of FS & R
Than DOA of Amended FS Extend SEP to the date of new AR
New AR- not dated earlier than
Request Management DoA of amended FS
Include EOMP or OMP – reason for
Agree Disagree Not amended amd in FS and previous AR
Not take step to inform anyone

amended receipt of previous FS & does
Modified accordingly AR not provided AR provided not amend FS
Check the adj / dis
Material Pervasive notify M & TCWG
Qualified Adverse not to issue FS to 3rd party Notify M and TCWG that
Auditor will seek to prevent
Future reliance on AR
If fs issued by M
If M or TCWG do not take
Seek legal advice to prevent reliance on AR

Necessary steps – seek LA
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Theory based questions
Summer 2018
Autumn 2014
Autumn 2013
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Autumn 2012
Scenerio based questions

Spring 2010
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Autumn 2015
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Summer 2013
Summer 2017
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ACCA question
Q1: Bullfinch.com is a website design company whose year end was 31 October 2014. The audit is
almost complete and the financial statements are due to be signed shortly. Revenue for the year is $11·2
million and profit before tax is $3·8 million. A key customer, with a receivables balance at the year end of
$283,000, has just notified Bullfinch.com that they are experiencing cash flow difficulties and so are
unable to make any payments for the foreseeable future. The finance director has notified the auditor that
he will write this balance off as an irrecoverable debt in the 2015 financial statements.
Required:
(i) Explain whether or not the 2014 financial statements require amendment; and
(ii) Describe audit procedures which should be performed in order to form a conclusion on any
required amendment.
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IAS 01 on Going Concern
2.5.1 Management’s assessment of the entity’s ability to continue as a going concern
[IAS 1] requires management to make an assessment of the entity’s ability to continue as a going concern
when preparing financial statements. Financial statements should be prepared on a going concern basis
unless management intends either to liquidate the entity or to cease trading, or has no realistic
alternative but to do so. [IAS 1:25]
2.5.2 Departure from going concern basis only in exceptional circumstances
ortant to note that when an entity prepares financial statements on a going concern basis, this does not im
e level of confidence that the entity will be able to continue as a going concern. Even when an entity is in s
l difficulties, [IAS 1:25] requires the going concern basis to be used unless management either intends to l
ty or to cease trading, or has no realistic alternative but to do so.
ngly, an entity will depart from the going concern basis only when it is, in effect, clear that it is not a going
here is significant uncertainty over whether an entity can continue in operational existence, [IAS 1] requires
basis to be used and appropriate disclosures to be made (see 2.5.4).
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here are doubts about an entity's ability to continue trading, the fact that the going concern basis must be u
inate the need to consider whether any assets should be written down to their recoverable amounts and w
n is required for any unavoidable costs under onerous contracts
2.5.3 Period to be covered by management’s going concern assessment
In assessing whether the going concern assumption is appropriate, management takes into account all
available information about the future. [IAS 1] states that the information should cover at least 12 months
from the end of the reporting period but not be limited to that period. The degree of consideration
depends on the facts in each case. When an entity has a history of profitable operations and ready
access to financial resources, a conclusion that the going concern basis of accounting is appropriate may
be reached without detailed analysis. In other cases, management may need to consider a wide range of
factors relating to current and expected profitability, debt repayment schedules and potential sources of
replacement financing before it can satisfy itself that the going concern basis is appropriate. [IAS 1:26]
2.5.4 Disclosure required of material uncertainties regarding the entity’s ability to continue as a
going concern
When management is aware, in making its assessment, of material uncertainties related to events or
conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those
uncertainties should be disclosed. [IAS 1:25]
[IAS 1] does not explain what it means for an entity to ‘continue as a going concern’, so it is appropriate to
look to the IASB’s Conceptual Framework for Financial Reporting. [IAS 1:4.1] of the Conceptual
Framework explains that financial statements “are normally prepared on the assumption that an
entity is a going concern and will continue in operation for the foreseeable future. Hence, it is
assumed that the entity has neither the intention nor the need to liquidate or curtail materially the
scale of its operations;
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ISA 570
GOING CONCERN
OBJECTIVE
SCOPE • To obtain sufficient appropriate audit evidence regarding use of the

going concern assumption by management in the preparation of
Auditor’s responsibilities in the audit the financial statements;
of financial statements relating to • To conclude, based on the audit evidence obtained, whether a
management’s use of the going material uncertainty exists related to events or conditions that may
concern assumption cast significant doubt on the entity’s ability to continue as a going
concern; and
• To determine the implications for the auditor’s report.
WHAT IS GOING CONCERN ASSUMPTION
Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future. When the use
AUDIT BY IBRAHIM
of the going concern assumption is appropriate, assets and liabilities are recorded on the basis that the entity will be able to
realize / disposed it in the normal course of business.
RESPONSIBLITIES
MANAGEMENT
AUDITOR
Management’s assessment of the entity’s ability
The auditor’s responsibility is to obtain sufficient
to continue as a going concern involves making
appropriate audit evidence about the appropriateness of
a judgment. The following factors are relevant assumption used by management in the preparation of
to that judgment: the FS and to conclude whether material uncertainty exist
• The degree of uncertainty associated with the or not
outcome of an event or condition.
• The size and complexity of the entity, the
nature and condition of its business and the
degree to which it is affected by external
factors.
• Any judgment about the future is based on
information available. Subsequent events may
result in outcomes that are inconsistent with
judgments.
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REQUIREMENT
Risk Assessment Procedures and Related Activities

When performing risk assessment procedures as required by ISA 315 (Revised),the auditor shall consider
whether there are events or conditions that may cast significant doubt on the entity’s ability to continue
as a going concern. In so doing,
If such an assessment has been performed or not
YES NO
Evaluating management assessment The auditor shall discuss with management

Period not less than 12 months the basis for intended use of the going
Assumption on which assessment is based concern assumption, and inquire about
If less than 12 months, request mgt for further events or conditions
actions and whether such plans are feasible
whether all information to which auditor is aware
are included in assessement
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!!!The auditor shall remain alert through the audit for audit evidence of events or conditions.
Period beyond Management Assessment
Inquire Request Other than inquiry

management of its Remain alert for management to auditor does not
events or condition consider that have responsibility
knowledge of beyond
events or condition to perform any
events or condition management other procedures on
beyond the period assessment. if it is significant period beyond
of management management
assessment. assessment.
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WHAT IS EVENTS AND CONDITIONS
FINANCIALS
Fixed-term borrowings Negative operating cash

Net liability or net approaching maturity without Indications of flows indicated by
current liability position. realistic prospects of renewal or withdrawal of financial historical or prospective
repayment; or excessive reliance support by creditors. financial statements.
on short-term borrowings to
finance long-term assets.
Substantial operating losses

or significant deterioration in Arrears or Inability to pay creditors
Adverse key financial
the value of assets used to discontinuance of on due dates.
ratios.
generate cash flows. dividends.
Inability to comply with Change from credit to cash-on- Inability to obtain financing for essential
AUDIT BY IBRAHIM
the terms of loan delivery transactions with new product development or other
agreements. suppliers. essential investments.
OPERATING
Loss of a major
Management intentions market, key Labor difficulties.
Loss of key management
to liquidate the entity or customer(s),
without replacement.
to cease operations. franchise, license, or
principal supplier(s).
Shortages of important Emergence of a highly

supplies. successful competitor.
OTHERS
Pending legal or regulatory Changes in law or Uninsured or

Non-compliance with proceedings against the regulation or underinsured
capital or other statutory entity. government policy catastrophes when they
requirements. expected to occur.
adversely affect the
entity.
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Additional Audit Procedures when events or condition are identified
❑ Analyzing and discussing the cash flow, profit and other relevant forecasts with the management.
❑ Analyzing and discussing latest available interim financial statements

❑ Reading the terms of debentures and loan agreements
❑ Reading minutes of the meetings of shareholders, TCWG and relevant committees for reference to financing difficulties.
❑ Inquiring entity’s legal counsel regarding existence of litigation and claims and reasonableness of management’s
assessments of their outcome and estimate of their financial implications.
❑ Performing audit procedures regarding subsequent events
❑ Confirming existence, terms and adequacy of the borrowing facilities
❑ Obtaining and reviewing reports of regulatory actions.
▪ Requesting written representations from management and those charged with governance regarding their plans for the future
actions and feasibility of those plans.
Communication with Those Charged with Governance

Auditor shall communicate with those charged with governance about the events or conditions identified
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that may cast significant doubt on going concern. Such communication shall include
Whether events or conditions constitute a material uncertainty;
Whether use of going concern basis is appropriate
Adequacy of related disclosures in the financial statements
Implications for the auditor’s report.
Significant Delay in the Approval of F/S
If there is significant delay in approval of the financial statements by management or those charged with
governance after the date of financial statements, auditor shall inquire the reasons for the delay. If the
auditor believes that the delay could be related to events or conditions relating to the going concern
assessment, the auditor shall perform necessary additional audit procedures.
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Event or condition
Going concern assessment No

Yes Q or DC
Going concern assumption appropriate
Yes No
Alternative basis + adequate disclosure
Material uncertainty exist

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Yes No Yes No
Clean Q or adverse
Material uncertainty disclosed
Yes No
Clean+ M M+P
MURTGC Q Adverse
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Report
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SUMMER 2013
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ISA 570 – Question
Mercury Motoring Co (Mercury) specializes in manufacturing engine parts for motor cars and the
company has a diverse customer base but seven significant customers. The company’s year end was 30
September 2015.
During the year, a number of the company’s significant customers have experienced a fall in sales, and
consequently they have purchased fewer items from Mercury. As a result, Mercury has paid a number of
its suppliers later than usual and some of them have withdrawn credit terms meaning the company must
pay cash on delivery. One of Mercury’s main suppliers is threatening legal action to recover the sums
owing. As a result of the increased level of payables, the company’s current ratio has fallen below 1 to 0·9
for the first time.
Mercury has produced a cash flow forecast to 30 June 2016 and this shows net cash outflows until May
2016.
Mercury has a loan of $2·3 million which is due for repayment in full by 30 September 2016.
The finance director has just informed the audit manager that there is a possible change in legislation
which will result in one of Mercury’s top product lines becoming obsolete as it will not comply with the
proposed law. The prepared cash flow forecasts do not reflect this possible event.
Required:
(a) Explain FIVE potential indicators that Mercury Motoring Co is NOT a going concern. (5 marks)
(b) Describe the audit procedures which you should perform in assessing whether or not Mercury
Motoring Co is a going concern.
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ISA 580 – Written representation
Scope Objective
• The auditor’s responsibility to obtain written • To obtain written representations from management
representations from management and, and, where appropriate, TCWG that they believe
where appropriate, TCWG in an audit of FS. that they have fulfilled their responsibility for the
preparation of the FS and for the completeness
• Other ISAs containing subject-matter specific of the information provided to the auditor.
requirements for written representations.
• To support other audit evidence relevant to the FS
or specific assertions in the FS by means of
written representations if determined necessary by
the auditor or required by other ISAs; and
• To respond appropriately to written representations

provided by management and, where appropriate,
TCWG, or if management or, where appropriate,
TCWG do not provide the written representations
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requested by the auditor.
What is written representation?

A written statement by management provided to the auditor to confirm certain matters or to support other audit
evidence. Written representations in this context do not include FS, the assertions therein, or supporting books
and records.
Written Representations as Audit Evidence (received or not)

Audit evidence is the information used by the auditor in arriving at the conclusions on which the auditor’s opinion
is based. Written representations are necessary information that the auditor requires in connection with the audit of the
entity’s FS. Accordingly, similar to responses to inquiries, written representations are audit evidence.
Although written representations provide necessary audit evidence, they don’t provide SAAE on their own about
any of the matters with which they deal. Furthermore, the fact that management has provided reliable written
representations does not affect the nature or extent of other audit evidence that the auditor obtains about the
fulfillment of management’s responsibilities, or about specific assertions.
Written representations are an important source of audit evidence. If management modifies or does not provide the
requested written representations, it may alert the auditor to the possibility that one or more significant issues may
exist. Further, a request for written, rather than oral, representations in many cases may prompt management to
consider such matters more rigorously, thereby enhancing the quality of the representations.
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Written Representations about Management’s Responsibilities
Information Provided and Completeness of

Preparation of the Financial Statements
Transactions
The auditor shall request management to provide a written
The auditor shall request management to provide a
representation that it has fulfilled its responsibility for the
written representation that:
preparation of the FS in accordance with the applicable
financial reporting framework, including, where relevant,
their fair presentation, as set out in the terms of the audit
engagement. All transactions
It has provided the auditor
Management responsibilities shall be described in the written have been
with all relevant information
representations in the manner in which these responsibilities recorded and
and access as agreed in the
are described in the terms of audit engagement. are reflected in
terms of the audit
the FS.
engagement and
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The auditor shall disclaim an opinion in accordance with ISA Provided
705
- There is sufficient doubt about the integrity of
management such that WR about MR are not reliable.
- Management does not provide the written representations
No
Yes
Sufficient doubt
about the
integrity
Yes
Disclaim
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Obj 2 Other specific and other

information
Required by other ISA WR to support other audit

Appendix 1 evidence
Provided
Yes No
Doubt over the

reliability of WR Discuss the Reevaluate the integrity of Take appropriate actions,
matter management and evaluate including determining the
Yes No with the effect that this may possible effect on the
manageme have on the reliability of opinion in the auditor’s
End
nt representations (oral or report in a/c with ISA
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A written) and audit 705, considering the

evidence in general; and requirement of
disclaimer due to MR
Competence, integrity and ethical values If the auditor has concerns
about the competence, integrity, ethical values of the management, the
Inconsistent with other audit evidence
auditor shall determine the effect that such concerns may have on the
reliability of representations (oral or written) and audit evidence in If written representations are inconsistent with
general. It may cause the auditor to conclude that the risk of other audit evidence, the auditor shall perform audit
management misrepresentation in the financial statements is such that procedures to attempt to resolve the matter.
an audit cannot be conducted. In such a case, the auditor may consider
withdrawing from the engagement, where withdrawal is possible
under applicable law or regulation, unless
Perform other audit procedures (whether risk
assessment remain appropriate and if not
revise the risk assessment and determine N,T
and E of FAP) to resolve the matter
TCWG put in place appropriate corrective measures
Matter resolve
Such measures may not
be sufficient to enable the
End
auditor to issue an A
Yes No
unmodified audit opinion
The auditor shall reconsider the assessment of the competence, integrity,

ethical values of management, the auditor shall determine the effect that
this may have on the reliability of representations and audit evidence in
general.
If the auditor concludes that the WR are not reliable, the auditor shall take appropriate actions, including determining the possible
effect on the opinion in the auditor’s report having regard to the requirement mention in management responsibility (Disclaimer).
concluded tha th
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General Rules
• Date and Period Covered by Written Representation

o Shall not be dated after the date of Auditors report
o At the date of audit report or as near as practicable
o For all financial statement and period referred in auditors report
• Form of Written representation

o Addressed to the auditor
• To whom representation is requested: with appropriate responsibility for the FS ad knowledge of the matter
concerned. Normally CEO and CFO or TCWG
• Can management use the word to the best of our knowledge and belief? Yes
• Can CFO or CEO confirm or discuss with third party or internally before giving representation? Yes
• Can management modify the language of written representation? Appropriate only in following
circumstances:
o Due to fire – management said that except for the information destroyed in fire we have provided all the
information
o Except for recording impairment – we have prepared the FS in accordance with the IFRS
Communicating a Threshold Amount
. ISA 450 requires the auditor to accumulate misstatements identified during the audit, other than those that are clearly
trivial.6The auditor may determine a threshold above which misstatements cannot be regarded as clearly trivial. In the same
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way, the auditor may consider communicating to management a threshold for purposes of the requested written
representations.
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Appendix 1
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ISA 570 – GOING CONCERN
ISA 501 – Litigation and Claims
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Autumn 2018
Autumn 2017
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Autumn 2016
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Spring 2016 Q.8

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Spring 2015 Q.1 (f)
Autumn 2014
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Autumn 2013
Spring 2013
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Autumn 2012
Summer 2012
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Summer 2017
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ISA 610 – Using the work of Internal Auditor
Objective:
• Whether the work of IAF can be used?

• If yes, to what areas and what extent
• Evaluate the adequacy of the work
Objective 01:
Evaluate the independence / objectivity, competence and use of systematic disciplined approach
Independence • Appointment -
• Remuneration - Determining the appropriate remuneration policy by
TCWG
• Reporting - Reports to TCWG or an officer with appropriate authority,
or if the function reports to management, whether it has direct
access to TCWG
• Managerial duties - Having managerial or operational duties or
responsibilities that are outside of the internal audit function
• Membership of PB that complies with ethical requirement
Competence • Resources - Whether the function is adequately and appropriately
resourced compare to the size of the entity and the nature of its
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operations
• Hiring and training - Established policies for hiring, training and
assigning internal auditors to internal audit engagements
• Technical training - Adequate technical training and proficiency in
auditing
• Industry specific knowledge - Possession of required knowledge
relating to the entity’s financial reporting and the applicable financial
reporting framework and industry-specific knowledge
• Member of PB - Member of relevant professional bodies that comply

with the relevant professional standards including continuing
professional development requirements
Systematic and • Internal audit work properly planned, supervised, reviewed and
disciplined approach documented
• Appropriate quality control policies and procedures
Objective 02: Which areas and to what extent – depends on
• Judgement – assessing the ROMM, going concern assumption, estimates, disclosure affecting
auditors report
• ROMM
• Organizational policies supporting independence
• Competency
Examples:
• Testing operating effectiveness of IC

• Substantive procedures involving limited judgement
• Observation of inventory count
• Compliance with laws and regulations
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Objective 03: Evaluate the adequacy of work
• The work of the function had been properly planned, performed, supervised, reviewed and
documented;
• Sufficient appropriate evidence had been obtained to enable the function to draw
reasonable conclusions
• Conclusions are appropriate and reports prepared by the function are consistent with the work
performed
• Any exceptions or unusual matters were properly resolved
Having evaluated the internal auditor’s specific areas of work, the external auditor will then perform further
procedures on some (or all) of the specific areas. Procedures may include:
❑ making inquiries of appropriate individuals within the internal audit function;
❑ observing procedures performed by internal audit;
❑ reviewing the internal audit function’s work program and working papers;
❑ re-performing a sample of the internal audit function’s procedures to validate conclusions reached by the
internal audit function.
The external auditor shall also evaluate whether, in aggregate, using the work of the internal audit function to the extent planned
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would sufficient to give the external auditor’s sole responsibility for the audit opinion expressed.
The external auditor shall, in communicating with TCWG an overview of the planned scope and timing and how the external
auditor has planned to use the work of the internal audit function.
Agreeing certain matters in advance should make it more likely that the external auditor will be able to
rely on the work of internal audit. It may therefore be useful for the external auditor to agree the following
in advance with internal audit:
the timing of such work
the nature of the work performed
the extent of audit coverage
materiality and performance materiality
methods of item selection and sample sizes
documentation of work performed
review and reporting procedures.
Communication with those charged with governance

ISA 610 (Revised) requires the external auditor to communicate the planned use of the work of the
internal audit function to those charged with governance for their understanding of the proposed audit
approach.
Scope 02: Direct Assistance
Objective 01: Whether Direct Assistance can be obtained
Depends on factors such as:
• Organizational policies support independence

• Competency
• Family and personal relationship
• Previous association with any department
• Any financial interest
Objective 02: which areas and to what extent – depends on:
• Judgement
• ROMM
• Independence
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• Competence
Certain areas prohibited by ISA:
• Discussion of fraud risk

• Unannounced audit procedures
• High judgement and ROMM
• relate to work with which the internal auditors have been involved and which has already been, or
will be, reported to management or those charged with governance by the internal audit function;
or
Objective 03:
Once the areas determined –
• obtain written agreement from management to not to intervene

• obtain written agreement from internal auditors to keep confidentiality
• The external auditor shall direct, supervise and review the work performed. The nature, timing and
extent will depend on:
o Judgement
o ROMM
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o Independence
o Competency
• The review procedures shall include the external auditor checking back to the underlying audit
evidence for some of the work performed by the internal auditors.
Communication with those charged with governance
• ISA 610 (Revised) requires the external auditor to communicate the planned use of internal audit in
providing direct assistance to those charged with governance
Documentation:
Internal audit function Direct Assistance

• Evaluation of independence, competency and • Evaluation of independence and Competency
systematic and disciplined approach
• basis of decision regarding nature and extent • Basis of decision regarding nature and extent
of work used of work
• Procedures performed to evaluate the • Who reviewed the work, date and extent of
adequacy of work review
• Written agreements
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Spring 2016 - Q.6 (c)
Briefly explain how an external auditor would evaluate the adequacy of the work performed by the internal
audit function.
Autumn 2015 - Q.1 (e)
Identify the factors that are considered in determining the independence of internal auditors.
Autumn 2014 - Q.3 (b)
Your firm is the auditor of Cell Phones (Private) Limited (CPPL), which operates a chain of mobile phone
retail outlets. About 25% of shareholding in CPPL is owned by Anwar and his wife. Anwar is the Chief
Executive of CPPL and also looks after the finance and operations of the company. There are five other
directors and each of them holds 15% shares in CPPL.
The Internal Audit Function comprises of three senior officers who are graduates. Their duties include
checking of accounting records, physical stock taking, preparation of bank reconciliations, reviewing
payments and verification of fixed and current assets.
During the planning phase, Anwar stressed the need for early completion of audit, in order to be able to
submit the audited financial statements for seeking a long term finance. He was of the view that internal
audit working papers would be of enormous help in performing and early completion of the audit.
Required:
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State whether it would be advisable to use the internal audit working papers in the above situation and
give three distinct reasons to support your decision.
Autumn 2009 – Q.4
During the audit of PQR Limited you have been assigned the task of evaluating the work performed by
the internal audit department of the company on certain specific areas.
Required:
(a) Describe how would you evaluate the work performed, in order to determine the extent of reliance
that may be placed thereon.
(b) List the important differences between internal and external audit with respect to the following:
• Independence
• Objectives
• Reporting
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ISA 620 – USING the Auditor expert
Auditor Expert: An individual or organization possessing expertise in a field other than accounting or
auditing, whose work is used by the auditor to assist the auditor in obtaining SAAE
Use of Expert: Valuation of complex financial instruments, land and building, plant and machinery,
intangible asset, business combination, estimation of oil and gas reserves
Objective 01: To determine whether to use the work of an Expert – Assessing the need for an
expert
• The nature, significance and Complexity of the matter

• ROMM
• Whether management expert is used
o Nature and scope of ME
o Employed or engaged
o Management influence ME
o Competence and capability
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Objective 02: Evaluate the Competency, Capability and Independence of Auditor expert
Competency and Capability Independence / Objectivity

• Technical professional standards or other • Inquire about any interest or relationship such
professional or industry requirement as financial interest, business and personal
• Competency to the matter for which the work relationship and providing any other services
will be used to the client
• Expertise related to auditing and accounting
INFORMATION CAN BE OBTAINED REGARDING COMPETENCY, CAPABILITY AND
INDEPENDENCE
• Personal experience with expert
• Discussion with expert
• Discussion with other auditors
• Knowledge of that expert qualification
• Published papers or books written by that expert
Obtain and understanding of the field of expertise of the Auditor’s expert
• To determine the nature, scope and objective of the expert work

• Evaluate the adequacy of work performed by expert
Agreement with auditor’s expert
• Nature, scope and objectives of the expert’s work

• Roles and responsibilities of the auditor and expert
• The nature, timing and extent of communication between auditor and expert, including the form
of any report to be provided by the expert
• The need for the auditor’s expert to observe confidentiality requirements.
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Objective 03 : Evaluate the adequacy of expert work
Relevance and reasonableness of the expert • Inquiry, review, recalculation, analytical

finding procedures, reperformance and observation
Relevance and reasonableness of • Consistent with the requirement of IFRS
assumptions
Relevance, completeness and accuracy of • Test controls over data
source data • Review the data for completeness and
internal consistency
Nature timing and extent of audit procedures depends on
• ROMM
• Significance of expert work
• Previous knowledge and experience
IF EXPERT WORK IS NOT ADEQUATE
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• Agree with the expert on the nature and extent of further work to be performed by that expert
• Perform additional audit procedures
o Auditor itself perform procedures
o Engage another auditor expert
• If any of the above 2 procedures could not be performed then this is the scope limitation and
assess the impact on audit report based on ISA 705
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REFERENCE TO THE AUDITOR’S EXPERT IN

THE AUDITOR’S REPORT
Yes
Modification?
Yes No
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The auditor shall not refer to the

work of an auditor’s expert in an
Relevant to an understanding NO
Required by law auditor’s report containing an
of a modification to the
or
auditor’s opinion unmodified opinion unless
regulation
required by law or regulation to do
so.
The auditor may need the

permission of the expert
before making such a
reference.
The auditor shall indicate in the auditor’s report that the above
references do not reduce the auditor’s responsibility for the
auditor’s opinion.
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Autumn 2018
Autumn 2017
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Spring 2016 – Q.9
You are the audit manager in a firm of Chartered Accountants. Your firm is often required to engage an
auditor’s expert for reporting on matters relating to the audits.
(a) List four key terms of engagement which should be agreed with the expert. (02)
(b) Specify the factors which should be considered in evaluating the adequacy of the work performed
by the expert.(04)
Spring 2015 – Q.4
Mineral Limited (ML) has incorporated a liability for gratuity payable to its employees on the basis of
actuarial valuation carried out by Professionals Limited (PL). As the audit partner of ML you are not
satisfied with the valuation report prepared by PL, and have decided to appoint Experts Limited (EL) to
carry out the valuation exercise again.
Required:
(a) State the matters that you would consider regarding:
(i) The competence, capabilities and objectivity of EL. (03)
(ii) Evaluation of the adequacy of EL’s work. (03)
(b) Briefly discuss the course of action in case you are not satisfied with the work performed by
EL.(03)
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Spring 2013 – Q.2
You are the manager responsible for the audit of Park Hotels Limited (PHL), which operates three hotels
in Pakistan. PHL has adopted the revaluation model for the valuation of buildings. In the current year,
revaluation has been carried out by a new firm, Farhan Associates (FA). PHL has incorporated the
effects of revaluation in the financial statements accordingly.
Required:
a) Briefly describe the matters that you would consider before using the report prepared by FA. (04
b) Identify and explain the principal audit procedures to be performed on the valuation of the hotel’s
buildings. (06)
Autumn 2010 – Q.8
When expertise in a field other than accounting or auditing is necessary to obtain sufficient appropriate
audit evidence, the auditor has to determine whether to use the work of an auditor’s expert.
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Required:
List down the sources from where the auditor may get the information regarding the expert’s competence,
capabilities and objectivity. (06)
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New AUDIT REPORT – Clean report

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ISA 700 (revised)
FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS
OBJECTIVE
SCOPE
a) To form an opinion on the FS based on an
• This ISA deals with the auditor’s responsibility to evaluation of the conclusions drawn from the
form an opinion on the financial statements. It also audit evidence obtained; and
deals with the form and content of the auditor’s b) To express clearly that opinion through a written
report issued as a result of an audit of FS. report.
Forming an Opinion on the Financial Statements

Reaching the audit opinion
In reaching his audit opinion, the auditor is required to evaluate whether:
he has obtained sufficient appropriate audit evidence as to whether the financial statements are free from
material misstatement
uncorrected misstatements are material, individually or in aggregate
the financial statements have been prepared in accordance with the requirements of the applicable financial
reporting framework (which for a “fair presentation framework” will include evaluating whether the financial
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statements give a true and fair view)
and, in particular, whether:

the financial statements adequately refer to or describe the applicable financial reporting framework
the financial statements adequately disclose the entity’s significant accounting policies
the significant accounting policies are appropriate and consistent with the applicable financial reporting
framework
accounting estimates are reasonable
the information in the financial statements is relevant, reliable, comparable and understandable
the financial statements provide adequate disclosures
the terminology used in the financial statements is appropriate
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Auditor’s Report
Title The auditor’s report shall have a title that clearly indicates that it is the
report of an independent auditor.
Addressee The auditor’s report shall be addressed, as appropriate, based on the

circumstances of the engagement. The auditor’s report is normally addressed
to those for whom the report is
prepared, often either to the shareholders or to those charged with
governance of the entity whose financial statements are being audited
Auditor’s Opinion The Opinion section of the auditor’s report includes:

a) Identify the entity whose FS have been audited;
b) State that the FS have been audited;
c) Identify the title of each statement comprising the FS;
d) Refer to the notes, including the summary of significant accounting
policies; and
e) Specify the date of, or period covered by, each FS comprising the FS.
When expressing an unmodified opinion on FS, the auditor’s opinion shall,
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unless otherwise required by law or regulation, use one of the following
phrases, which are regarded as being equivalent:
a) In our opinion, the accompanying FS present fairly, in all material
respects, […] in accordance with [the applicable financial
reporting framework]; or
b) In our opinion, the accompanying FS give a true and fair view of

[…] in accordance with [the applicable financial reporting
framework]. (Ref: Para. A24-A31)
When expressing an unmodified opinion on FS prepared in accordance with a
compliance framework, the auditor’s opinion shall be that the accompanying
financial statements are prepared, in all material respects, in accordance with
[the applicable financial reporting framework]. (Ref: Para. A26-A31)
If the reference to the applicable financial reporting framework in the

auditor’s opinion is not to IFRSs, the auditor’s opinion shall identify the
jurisdiction of origin of the framework.
Basis for Opinion The auditor’s report shall include a section, directly following the Opinion
section, with the heading “Basis for Opinion”, that:
a) States that the audit was conducted in accordance with ISA;
b) Refers to the section of the auditor’s report that describes the auditor’s
responsibilities under the ISAs;
c) Includes a statement that the auditor is independent of the entity in
accordance with the relevant ethical requirements relating to the audit, and
has fulfilled the auditor’s other ethical responsibilities in accordance with
these requirements. The statement shall identify the jurisdiction of origin of
the relevant ethical requirements or refer to the International Ethics
Standards Board for Accountants’ Code of Ethics for Professional
Accountants; and
d) States whether the auditor believes that the audit evidence the auditor has
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obtained is sufficient and appropriate to provide a basis for the auditor’s

opinion.
Going Concern Where applicable, the auditor shall report in accordance with ISA 570
(Revised).
• If adequate disclosure about the MATERIAL UNCERTAINITY is made in
the financial statement, the auditor shall express an unmodified opinion
and the auditor’s report shall include a separate section under the
heading “ MATERIAL UNCERTAINITY RELATIN TO GOING
CONCERN” to:
-Draw attention to note to the FS that disclose the matter
- State that these events or condition indicate that a material uncertainty exist that
may cast significant doubt on the entity’s ability to continue as a going concern
and
-that auditor opinion is not modified in respect of this matter.
Key Audit Matters For audits of complete sets of general purpose FS of listed entities, the auditor
shall communicate key audit matters in the auditor’s report in accordance with
ISA 701.
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When the auditor is otherwise required by law or regulation or decides to

communicate key audit matters in the auditor’s report, the auditor shall do so in
accordance with ISA 701.
• Key audit matters are those matters that, in the auditor’s professional
judgment, were of most significance in the audit of the financial
statements [of the current period];and
• These matters were addressed in the context of the audit of the
financial statements as a whole, and in forming the auditor’s opinion
thereon, and the auditor does not provide a separate opinion on these
matters.
• Include a reference to the related disclosure if any;
• Why the matter was considered to be one of most significance in the
audit and therefore determined to be a key audit matter; and
• How the matter was addressed in the audit
Other Information Where applicable, the auditor shall report in accordance with ISA 720
(Revised).
Responsibilities for The auditor’s report shall include a section with a heading “Responsibilities of
the Financial Management for the FS.”.
Statements This section of the auditor’s report shall describe management’s
responsibility for:
a) Preparing the FS in accordance with the applicable financial reporting
framework, and for such internal control as management determines is
necessary to enable the preparation of FS that are free from material
misstatement, whether due to fraud or error; and
b) Assessing the entity’s ability to continue as a going concern and whether

the use of the going concern basis of accounting is appropriate as
well as disclosing, if applicable, matters relating to going concern. The
explanation of management’s responsibility for this assessment shall
include a description of when the use of the going concern basis of
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accounting is appropriate.
This section of the auditor’s report shall also identify those responsible for the
oversight of the financial reporting process, when those responsible for such
oversight are different from those who fulfill the responsibilities
When the FS are prepared in accordance with a fair presentation
framework, the description of responsibilities for the financial statements in the
auditor’s report shall refer to “the preparation and fair presentation of these
financial statements” or “the preparation of financial statements that give a
true and fair view,” as appropriate in the circumstances.
Auditor’s The auditor’s report shall include a section with the heading “Auditor’s
Responsibilities for Responsibilities for the Audit of the FS.”
the Audit of the
Financial Statements This section of the auditor’s report shall:
a) State that the objectives of the auditor are to:
I. Obtain reasonable assurance about whether the FS as a whole are
free from material misstatement, whether due to fraud or error; and
II. Issue an auditor’s report that includes the auditor’s opinion.
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b) State that reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs will always
detect a material misstatement when it exists; and
c) State that misstatements can arise from fraud or error, and either:
I. Describe that they are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these FS; or
II. Provide a definition or description of materiality in accordance
with the applicable financial reporting framework.
The Auditor’s Responsibilities for the Audit of the FS section of the auditor’s
report shall further:
a) State that, as part of an audit in accordance with ISAs, the auditor exercises
professional judgment and maintains professional skepticism
throughout the audit
b) Describe an audit by stating that the auditor’s responsibilities are:
I. To identify and assess the ROMM of the FS, whether due to fraud or
error; to design and perform audit procedures responsive to those risks; and
to obtain audit evidence that is sufficient and appropriate to provide a
basis for the auditor’s opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
II. To obtain an understanding of internal control relevant to the audit in order

to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. In circumstances when the auditor also has a
responsibility to express an opinion on the effectiveness of internal control
in conjunction with the audit of the FS, the auditor shall omit the phrase
that the auditor’s consideration of internal control is not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control.
III. To evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
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IV. To conclude on the appropriateness of management’s use of the going

concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that
may cast significant doubt
on the entity’s ability to continue as a going concern. If the auditor
concludes that a material uncertainty exists, the auditor is required to
draw attention in the auditor’s report to the related disclosures in the FS or,
if such disclosures are inadequate, to modify the opinion. The auditor’s
conclusions are based on the audit evidence obtained up to the date of the
auditor’s report. However, future events or conditions may cause an entity
to cease to continue as going concern
V. When the FS are prepared in accordance with a fair presentation

framework, to evaluate the overall presentation, structure and content
of the FS, including the disclosures, and whether the FS represent the
underlying transactions and events in a manner that achieves fair
presentation
c) When ISA 600 applies, further describe the auditor’s responsibilities in a

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group audit engagement by stating that:
I. The auditor’s responsibilities are to obtain SAAE regarding the

financial information of the entities or business activities within the
group to express an opinion on the group FS;
II. The auditor is responsible for the direction, supervision and

performance of the group audit; and
III. The auditor remains solely responsible for the auditor’s opinion
The Auditor’s Responsibilities for the Audit of the FS section of the auditor’s
report also shall:
a) State that the auditor communicates with TCWG regarding, among
other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that
the auditor identifies during the audit;
b) For audits of FS of listed entities, state that the auditor provides TCWG
with a statement that the auditor has complied with relevant ethical
requirements regarding independence and communicate with them all
relationships and other matters that may reasonably be thought to bear on
the auditor’s independence, and where applicable, related safeguards; and
c) For audits of FS of listed entities and any other entities for which key audit
matters are communicated in accordance with ISA 701, state that, from the
matters communicated with TCWG, the auditor determines those matters
that were of most significance in the audit of the FS of the current period
and are therefore the key audit matters. The auditor describes these
matters in the auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, the
auditor determines that a matter should not be communicated in the
auditor’s report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such
communication.
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Location of the The description of the auditor’s responsibilities (see italic and underline one in
description of the the preceding paragraph) for the audit of the FS shall be included:
auditor’s
a) Within the body of the auditor’s report;
responsibilities for
the audit of the
b) Within an appendix to the auditor’s report, in which case the
auditor’s report shall include a reference to the location of the
appendix; or
c) By a specific reference within the auditor’s report to the location of such

a description on a website of an appropriate authority, where law,
regulation or national auditing standards expressly permit the auditor to
do so.
When the auditor refers to a description of the auditor’s responsibilities on a
website of an appropriate authority, the auditor shall determine that such
description addresses, and is not inconsistent with, the requirements of this
ISA.
Other Reporting If the auditor addresses other reporting responsibilities in the auditor’s
Responsibilities report on the FS that are in addition to the auditor’s responsibilities under
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the ISAs, these other reporting responsibilities shall be addressed in a
separate section in the auditor’s report with a heading titled “Report on Other
Legal and Regulatory Requirements” or otherwise as appropriate to the
content of the section, unless these other reporting responsibilities address
the same topics as those presented under the reporting responsibilities
required by the ISAs in which case the other reporting responsibilities may
be presented in the same section as the related report elements required by
the ISAs.
If other reporting responsibilities are presented in the same section as the
related report elements required by the ISA, the auditor’s report shall
clearly differentiate the other reporting responsibilities from the reporting that is
required by the ISAs.
If the auditor’s report contains a separate section that addresses other
reporting responsibilities, the content as mentioned above shall be included
under a section with a heading “Report on the Audit of the Financial
Statements.” The “Report on Other Legal and Regulatory Requirements” shall
follow the “Report on the Audit of the Financial Statements.”
Name of the The name of the engagement partner shall be included in the auditor’s report
Engagement Partner for audits of complete sets of general purpose FS of listed entities unless,
in rare circumstances, such disclosure is reasonably expected to lead to a
significant personal security threat. In the rare circumstances that the
auditor intends not to include the name of the engagement partner in the
auditor’s report, the auditor shall discuss this intention with TCWG to inform
the auditor’s assessment of the likelihood and severity of a significant personal
security threat.
Signature of the The auditor’s report shall be signed. The auditor’s signature is either in the name
Auditor of audit firm, the personal name of the auditor or both, as appropriate for the
particular jurisdiction. In
addition to the auditor’s signature, in certain jurisdictions, the auditor may be
required to declare in the auditor’s report the auditor’s professional
accountancy designation or the fact that the auditor or firm, as appropriate, has
been recognized by the appropriate licensing authority in that
jurisdiction.
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Auditor’s Address The auditor’s report shall name the location in the jurisdiction where the
auditor practices.
Date of the Auditor’s The auditor’s report shall be dated no earlier than the date on which the
Report auditor has obtained SAAE on which to base the auditor’s opinion on the FS,
including evidence that:
a) All the statements and disclosures that comprise the FS have been
prepared
b) Those with the recognized authority have asserted that they have taken
responsibility for those FS.
The date of the auditor’s report informs the user of the auditor’s report that the
auditor has considered the effect of events and transactions of which the auditor
became aware and that occurred up to that date.
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Autumn 2016 Q.5

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ISA 701 KEY AUDIT MATTERS
WHAT IS KAM
Those matters that in auditor’s professional judgement were of most significance in the
audit of FS of Current period (even if comparative FS are presented). Key audit
matters are selected from matters communicated to those charged with
governance
PURPOSE OF KAM
The purpose of communicating KAM is to enhance the communicative value of
the auditor’s report by providing greater transparency about the audit that
was performed.
Communicating KAM provides additional information to intended users of the
financial statement to assist them in understanding those matters that in the
auditor’s professional judgement were of most significance in the audit of FS of
the current period
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APPLICABILITY OF KAM
• KAM applies to audit of complete set of general purpose financial
statements of listed entities
• Circumstances when the auditor otherwise decides to communicate key audit
matters in the auditor’s report.
• when the auditor is required by law or regulation to communicate key
audit matters in the auditor’s report
KAM IS NOT THE SUBSTITUE FOR:

Communicating key audit matters in the auditor’s report is not:
(a) A substitute for disclosures in the financial statements that the
applicable financial reporting framework requires management to
make, or that are otherwise necessary to achieve fair presentation;
(b) A substitute for the auditor expressing a modified opinion when
required by the circumstances of a specific audit engagement in
accordance with ISA 705 (Revised);1
(c) A substitute for reporting in accordance with ISA 570 (Revised)
when a material uncertainty exists relating to events or conditions
that may cast significant doubt on an entity’s ability to continue as a
going concern; or
(d) A separate opinion on individual matters.
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SCOPE
Objective
• Deals with auditors responsibility to
communicate KAM in the auditor’s
report
• Communicate those matters by

• To determine KAM describing them in auditors
report
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Matters communicated with Matters that required KAM = matters of most
those charged with governance significant auditor attention significance in the audit of the
current period
Areas of Significant auditor Effect on the audit The nature and extent of
higher judgments relating to of significant events communication with those
assessed risk areas in the financial or transactions that charged with governance provides
of material statements that occurred during the an indication of which matters are
misstatement, involved significant period. of most significance. Other
or significant management consideration in determining the
risks. judgment, including
relative significance of a matter
accounting estimates include
identified as having
high estimation
uncertainty.
Importance of the Nature of the

Nature and matter to intended underlying Nature and
severity of users’ accounting policy materiality of
Nature and
difficulties in Severity of understanding of or complexity or corrected and
extent of applying audit any control the financial subjectivity in uncorrected
audit effort procedures or deficiencie statements as a management’s misstatements
needed to obtaining s related to whole, in particular selection of an related to the
address the relevant and the matter. its materiality to appropriate matter.
matter. reliable audit the financial accounting
evidence. statements. policy.
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How to communicate KAM
Description of Individual KAM

Introductory Paragraph
The auditor shall describe each key audit
• Include a reference to the related
matter, using an appropriate
disclosure if any;
subheading, in a separate section of the
• Why the matter was considered to be
one of most significance in the audit
auditor’s report under the heading
“Key Audit Matters,” The introductory and therefore determined to be a key
language in this section of the auditor’s report audit matter; and
shall • How the matter was addressed in the
state that audit
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• Key audit matters are those matters that, in the auditor’s

professional judgment, were of most significance in the
audit of the financial statements [of the current period];and
• These matters were addressed in the context of the audit
of the financial statements as a whole, and in forming the
auditor’s opinion thereon, and the auditor does not provide a
separate opinion on these matters.
EXCEPTION TO COMMUNICATE KAM

The auditor shall describe each key audit matter in the auditor’s report unless:
Law or regulation precludes public disclosure about the matter; or
• In extremely rare circumstances, the auditor determines that the matter should not be communicated in the auditor’s
report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication. This shall not apply if the entity has publicly disclosed information about the
matter
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INTERACTION OF KAM WITH OTHER ELEMENTS OF AUDIT REPORT
Qualified Opinion OR Material

Disclaimer opinion
Uncertainty Relating to Going Adverse opinion
Concern
Qualified opinion and or Material

uncertainty relating to going concern When the auditor express a qualified
are by their nature Key audit matters. opinion or adverse opinion,
AUDIT BY IBRAHIM
Unless required by law or
Therefore these matters shall not communicating other matter key audit regulation, when the auditor
described in the Key audit matters matters would still be relevant to disclaims an opinion on the
sections. Rather the auditor shall: enhancing intended users’ understanding financial statements, the
• Report on these matters in of the audit, and therefore the auditor’s report shall not
accordance with applicable ISA requirements to determine key audit include KAM section in
• Include a reference to the matters apply. accordance with ISA 701
Basis for Qualified (Adverse) However, as an adverse opinion is
Opinion or the Material expressed in circumstances when the
Uncertainty Related to Going auditor has concluded that
Concern section(s) in the Key misstatements, individually or in the
Audit Matters section – ( In aggregate, are both material and
addition to the matter as pervasive to the financial statements
described in basis of qualified
opinion section or material
uncertainty relating to going
concern section we have
determined the matters
described below the key audit
matters to be communicated in Depending on the If one or more matters
our report) significance of the other than the matter(s)
matter(s) giving rise to an giving rise to an adverse
adverse opinion, the auditor opinion are determined
Even if No kam may determine that no to be key audit matters,
identified auditor needs other matters are key audit it is particularly important
to communicate this matters. that the descriptions of such
fact in the auditors other key audit matters do
report. Except for the matters
described in the basis for not imply that the financial
adverse opinion section, statements as a whole are
we have determined that more credible in relation to
there are no other KAM to those matters than would be
communicate in our report appropriate in the
circumstances, in view of the
adverse opinion
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ADVANTAGES OF COMMUNICATION TO THOSE CHAGRED WITH GOVERNANCE

• It will help to have a two way robust two way dialogues about KAM at the time the financial statement are being
finalized for issuance
• Enable them to be aware of the KAM that the auditors intend to communicate in the auditor’s report, and provides
them with an opportunity to obtain further clarification where necessary
• Communication with TCWG recognize their important role in overseeing the financial reporting process
What matters to communicate?
If applicable, depending on the facts and circumstances of the

Those matters that auditor has entity and the audit, the auditors determination that there are
determined to be KAM no KAM to communicate in the auditor’s report
AUDIT BY IBRAHIM
DOCUMENTATION
• The matters that required significant auditor’s attention and the rationale for the auditor’s determination as to
whether or not each of these matters is a key audit matter
• Where applicable, the rationale for the auditor’s determination that there are no key audit matters to communicate in
the auditor’s report
• Where applicable, the rationale for the auditor’s determination not to communicate in the auditor’s report a matter
determined to be a key audit matter
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Qualified opinion due to scope limitation
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Adverse opinion
AUDIT BY IBRAHIM
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MURTGC
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Winter 2016
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Winter 2017
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March 2019
Summer 2018
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INTERNATIONAL STANDARD ON AUDITING 705
MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDIOTR’S REPORT
Modification to the Auditor’s Opinion
No Yes
Report as per ISA 700 Report as per ISA 705

AUDIT BY IBRAHIM
ISA 705
SCOPE: INDEPENDENT AUDITORS RESPONSIBILITY TO ISSUE
AN APPROPRIATE AUDIT REPORT
1. When the Auditor concludes that 2. How the form and content of
a Modification to the Auditor’s & the auditor’s report is affected
Opinion on the Financial when auditor express
Statements is necessary modification
Types of Modified Opinion?
1. Qualified 2. Adverse 3. Disclaimer
Which type of Opinion is appropriate?
Nature of Matter giving rise to the modification
&
Auditor’s Judgement about pervasiveness of the Matter
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OBJECTIVE: TO EXPRESS MODIFIED OPINION ON FINANCIAL STATEMENTS
WHEN
1. When the Auditor concludes

that a Modification to the
Auditor’s Opinion on the
Based on AE obtained, Financial State
concludes that FS are not mOenr ts i Unable to obtain SAAE
free from MM
(Scope Limitation)
(Material Misstatement)
WHAT IS MISSTATEMENT
A Difference btw the reported amount, classification, presentation or disclosure of a FS item and the amount, classification,
presentation or disclosure that is required for the item in accordance with AFRF
AUDIT BY IBRAHIM
MATERIAL MISSTATEMENT MAY ARISE:
A) Appropriateness of selected B) Application of selected C) Appropriateness or adequacy of disclosure

accounting policies accounting policy in the FS
• AP is not consistent with the • Not applied consistently • Do not include all disclosure required by
AFRF • Due to the method of AFRF
• FS do not represent the application of selected • Not presented in a/c with the AFRF
accounting policies • Do not provide disclosure necessary to
underlying transaction and
(unintentional error achieve fair presentation
events in a manner that
achieves fair presentation
If the impact is MATERIAL +

If the impact is material –
PERVASIVE
QUALIFIED OPINION
ADVERSE OPINION
What is QUALIFIED OPINION? What is ADVERSE OPINION?
Except for the effect of the matter described in Because of the significance of the matter discussed
basis for qualified opinion, the FS prepared in in the basis for adverse opinion, the FS is not
accordance with IFRS prepared in accordance with IFRS
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SCOPE LIMITATION MAY ARISE:
A) Circumstances beyond B) Circumstances relating to C) Limitation imposed by the

the control of the entity nature or timing of auditors management
work
1. Entity’s accounting 1. Prevent auditor from
record has been 1. Timing of the auditor observing inventory count
destroyed appointment is such that 2. Prevent auditor from
2. Accounting record unable to observe physical sending confirmation
seized by Govt. observation
authorities 2. Substantive procedure cannot
provide SAAE
3.
AUDIT BY IBRAHIM
If the impact is MATERIAL +

If the impact is material PERVASIVE
QUALIFIED OPINION DISCLAIMER OPINION
If the impact is material If the impact is MATERIAL +

PERVASIVE
Except for the possible effect of
the matter described in basis for Because of the significance of the
qualified opinion, the FS prepared matter described in the basis for
in accordance with IFRS disclaimer opinion, we have not been
able to obtain SAAE to provide a
basis for an audit opinion.
Important Note: An inability to perform a specific procedure does not constitute a limitation on the
scope of the audit if the auditor is able to obtain SAAE by performing alternative audit procedures. If
this is not possible then auditor shall express qualified or disclaimer as applicable.
Limitation imposed by the management may have other implications for the audit, such as for the
auditor’s assessment of fraud risk and consideration of engagement continuance
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WHAT IS PERVASIVE?
A term used in the context of:

• Misstatement, to describe the effect on the financial statement of misstatement
OR
• Possible effect on the financial statements of misstatements, if any, that are undetected due
to the inability to obtain SAAE
Pervasive effect on the FS are those that, in the auditors judgement
Are not confined to specific In relation to disclosures, are

If so confined, represent or could
elements, accounts or item of FS fundamental to users
represent substantial portion of FS
AUDIT BY IBRAHIM
understanding of FS
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CONSEQUENCES of an INABILITY to OBTAIN SAAE Due to management imposed

limitation after the audit has accepted engagement
If after accepting the If unable to obtain SAAE the audit shall determine the following
If management implications:
engagement, the
refuse –
auditor becomes • If possible effect is material – auditor shall qualify opinion
communicate to
aware that • If possible effect is material and pervasive
TCWG and
management has o Withdraw if withdraw is possible under applicable law
determine
imposed a limitation or regulation. The practicality of withdrawing from the
whether it is
on the scope of audit audit may depends on the stage of completion of the
possible to
that the auditor engagement at the time management imposes the
perform
consider will likely to scope limitation. If the auditor withdraws, before
Alternative
express a qualified or withdrawing communicate to TCWG any misstatement
procedures to
AUDIT BY IBRAHIM
disclaimer – Shall identified during the audit that would have given rise
obtain SAAE
request the to modification.
management o If the auditor has substantially completed the audit,
remove limitation the auditor may decide to complete the audit to the
extent possible, disclaim an opinion and explain the
scope limitation in the basis for disclaimer opinion
o If withdrawal is not possible or practicable, disclaim an
opinion on the FS
When the auditor concludes that withdrawal from the audit is

necessary because of a scope limitation, there may be a
professional, legal or regulatory requirement for the auditor to
communicate matters relating to the withdrawal from the
engagement to regulators or the entity’s owners.
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Form and content of Auditors report when the opinion is modified
Content of Changes due to modification

audit report
Basis for • Basis for qualified, adverse or disclaimer
opinion • If MM – include in the basis for qualification paragraph a description and quantification of the
financial effect (effect on income tax, income before tax, net income and equity) of the
misstatement unless impracticable. If not practicable, the auditor shall state this fact in the
basis for modification paragraph
• If MM that relates to narrative disclosure – explain how disclosure are misstated
• If MM relates to non-disclosure – discuss the non-disclosure with TCWG, describe in the
basis for modification paragraph the nature of omitted information, unless prohibited by law or
regulation, include the omitted disclosure provided it is practicable (not prepared by
management or not readily available to auditor and in auditors judgement disclosure would be
voluminous in relation to the report) and auditor has obtained SAAE about the omitted
information
• If modification result from an inability to obtain SAAE, include reason for inability
• Even if adverse or disclaimer, the auditor shall describe in the basis for modification
paragraph the reason for any other matters of which the auditor is aware that would have
required a modification to the opinion and the effects thereof
AUDIT BY IBRAHIM
• For qualified or adverse opinion – audit evidence obtained is sufficient and appropriate to
provide a basis for adverse / qualified opinion.
Opinion • Qualified opinion, Adverse opinion, or Disclaimer opinion. Not appropriate use phrase such as
paragraph “ with the foregoing explanation or “ subject to”
• Qualified opinion due to MM: Except for the effect of the matter described in Basis for
qualified opinion Fs gives true and fair view
• Qualified opinion due to scope limitation – Except for the possible effect
• Adverse opinion – because of the significance of the matter described in basis for adverse
opinion the Fs do not give true and fair view
• Disclaimer - Because of the significance of the matter(s) described in the Basis for Disclaimer
of Opinion paragraph, the auditor has not been able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion; and, accordingly, the auditor does not
express an opinion on the financial statements. + Change “ Financial statements has been
audited to auditor was engaged to audit the FS”
Auditors • Disclaimer: When the auditor disclaims an opinion due to an inability to obtain sufficient
Responsibility appropriate audit evidence, the auditor shall amend the description of the auditors
responsibility to include only the following
• A statement that auditor’s responsibility is to conduct an audit of the entity’s financial
statement in a/c with ISA and to issue and auditor’s report;
• A statement that, however because of the matter described in the basis for disclaimer of
opinion section, the auditor was not able to obtain SAAE to provide a basis for an audit
opinion on the FS; and
• The statement about auditor’s independence and other ethical responsibilities
No need to include KAM
Communication with Those Charged with Governance

When the auditor expects to modify the opinion in the auditor’s report, the auditor shall communicate with those charged with governance
the circumstances that led to the expected modification and the proposed wording of the modification.
Communicating with those charged with governance the circumstances that lead to an expected modification to the auditor’s opinion and the
proposed wording of the modification enables:
(a) The auditor to give notice to those charged with governance of the intended modification(s) and the reasons (or circumstances) for the
modification(s);
(b) The auditor to seek the concurrence of those charged with governance regarding the facts of the matter(s) giving rise to the
expected modification(s), or to confirm matters of disagreement with management as such; and
(c) Those charged with governance to have an opportunity, where appropriate, to provide the auditor with further information and
explanations in respect of the matter(s) giving rise to the expected modification(s).
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QUALIFIED OPINION DUE TO SCOPE LIMITATION

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QUALIFIED OPINION MATERIAL MISSTATEMENT
Qualified Opinion Material Misstatement
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ADVERSE - MISSTATEMENT
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Disclaimer Scope limitation
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MODULE D PAST PAPERS
Autumn 2018
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Spring 2018
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Autumn 2017
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Summer 2017
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Autumn 2015 Q.6
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Spring 2014 Q.3
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Spring 2014 Q.8
Spring 2013 Q.10

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Spring 2013 Q.6
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Autumn 2012 Q.2
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Spring 2012 Q.1
Spring 2012 Q.8 (b)

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Autumn 2011 Q.8
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Spring 2011 Q.8

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ISA 706:EMPHASIS OF MATTER PARAGRAPHS AND

OTHER MATTER PARAGRAPHS IN THE INDEPENDENT
AUDITOR’S REPORT
SCOPE OBJECTIVE
This International Standard on To draw user attention when in

Auditing (ISA) deals the auditor’s judgment it is
with additional communication necessary to do so, by way of
in the auditor’s report when clear additional
the auditor considers it communication in the auditor’s
necessary to report, to:
AUDIT BY IBRAHIM
OMP
EOMP Draw users’ attention to any
matter or matters other than
Draw users’ attention to a matter or
those presented or disclosed in
matters presented or disclosed in Relationship between KAM,
the financial statements that are
the financial statements that are EOMP and OMP
relevant to users’ understanding
of such importance that they are
of the audit, the auditor’s
fundamental to users’ responsibilities or the
understanding of the financial auditor’s report.
statements; or
DEFINITIONS
OMP
EOMP
Other Matter paragraph - A
Emphasis of Matter paragraph - A
paragraph included in the auditor’s
paragraph included in the auditor’s
report that refers to a matter other than
report that refers to a matter
those presented or disclosed in the
appropriately presented or disclosed
financial statements that, in the
in the financial statements that, in the
auditor’s judgment, is relevant
auditor’s judgment, is of such
to users’ understanding of the audit,
importance that it is fundamental to
the auditor’s responsibilities or
users’ understanding of the financial
the auditor’s report.
statements.
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EMPHASIS OF MATTER PARAGRAPH
If the auditor considers it necessary to draw users’ attention to a matter presented or disclosed in the
financial statements that, in the auditor’s judgment, is of such importance that it is fundamental
to users’ understanding of the financial statements, the auditor shall include an Emphasis of Matter
paragraph in the auditor’s report provided:
The auditor would not be When ISA 701 applies, the matter
required to modify the opinion has not been determined to be a
in accordance with ISA 705 key audit matter to be
(Revised)4 as a result of the communicated in the auditor’s
matter; and report
CONTENT OF EMPHASIS OF MATTER PARAGRAPH
When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall
Indicate that the auditor’s

AUDIT BY IBRAHIM
Include the paragraph within a Include in the paragraph a clear reference to the
separate section of the auditor’s matter being emphasized and to where relevant opinion is not modified in
report with an appropriate disclosures that fully describe the matter can be respect of the matter
heading that includes the term found in the financial statements. The paragraph emphasized
“Emphasis of Matter” shall refer only to information presented or
disclosed in the financial statements; and
MANDATORY REQUIRMENT TO INCLUDE EOMP AS PER SPECIFIC ISA
ISA 210- When a financial

ISA 560 When facts become
reporting framework
known to the auditor after the date
prescribed by law or
of the auditor’s report and the
regulation would be
auditor provides a new or
unacceptable but for the
amended auditor’s report (i.e.,
fact that it is prescribed by
subsequent events).
law or regulation.
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CIRCUMSTANCES WHERE AUDITOR MAY CONSIDER IT NECESSARY TO INCLUDE EOMP
A significant Early application A major catastrophe

An uncertainty
subsequent event (where permitted) of that has had, or
relating to the
that occurs between a new accounting continues to have, a
future outcome of the date of the standard that has a significant effect on
exceptional litigation financial statements material effect on the the entity’s financial
or regulatory action. and the date of the financial statements. position.
auditor’s report.
ISA 560 – Dual DateWhere the auditor has restricted the audit procedure on subsequent events to
that amendment, convey in EOMP or OMP that auditors procedure on SE are restricted solely to that
amendment
AUDIT BY IBRAHIM
OTHER MATTER PARAGRAPH
If the auditor considers it necessary to communicate a matter other than those that are presented or
disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the
audit, the auditor’s responsibilities or the auditor’s report, the auditor shall include an Other Matter paragraph in
the auditor’s report, provided
When ISA 701 applies, the

This is not prohibited by law matter has not been
or regulation; and determined to be a
CONTENT OF EMPHASIS OF MATTER PARAGRAPH
When the auditor includes an Other Matter paragraph in the auditor’s

report, the auditor shall include the paragraph within a separate section with
the heading “Other Matter,” or other appropriate heading.
include
information that is required to be
provided by management.
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MANDATORY REQUIRMENT TO INCLUDE OMP AS PER SPECIFIC ISA
ISA 710 -If the financial statements of the

ISA 560 – Dual Date prior period were audited by a predecessor
ISA 560 When facts auditor, in addition to expressing an opinion
Where the auditor has on the current period’s financial statements,
become known to the the auditor shall state in an Other Matter
restricted the audit auditor after the date of paragraph: a. that the financial statements of
procedure on subsequent the auditor’s report and the prior period were audited by a
events to that amendment, the auditor provides a predecessor auditor; b. the type of opinion
convey in EOMP or OMP new or amended expressed by the predecessor auditor and, if
that auditors procedure on the opinion was modified, the reasons
auditor’s report (i.e., therefore; and the date of that report
SE are restricted solely to subsequent events). ISA 710 – If the prior period FS were not
that amendment audited, the auditor shall state in an OMP that
the Comparative financial statement /
corresponding figure are unaudited
SCOPE LIMITATION- UNABLE TO WITHDRAW – auditor may consider to give OMP

In the rare circumstance where the auditor is unable to withdraw from an engagement even though the
possible effect of an inability to obtain sufficient appropriate audit evidence due to a limitation on the scope of
AUDIT BY IBRAHIM
the audit imposed by management is pervasive,10 the auditor may consider it necessary to include an Other
Matter paragraph in the auditor’s report to explain why it is not possible for the auditor to withdraw from
the engagement.
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PLACEMENT OF EMPHASIS OF MATTER PARAGRAPH AND OTHER MATTER PARAGRAPH IN

THE AUDITORS REPORT
The placement of an Emphasis of Matter paragraph or Other Matter paragraph in the auditor’s report
depends on the nature of the information to be communicated, and the auditor’s judgment as to the
relative significance of such information to intended users compared to other elements required to be
reported in accordance with ISA 700 (Revised). For example
EOMP OMP
AUDIT BY IBRAHIM
When relevant to all
When a Key Audit the auditor’s
Matters section is responsibilities or
presented in the users ‘understanding
auditor’s report of the auditor’s report,
the Other Matter
auditor paragraph may be
determines that the included as a
auditor’s judgment as to
financial reporting auditor may add separate section
the relative significance of
framework prescribed by the information included in further context to the following the Report
law or regulation would the Emphasis of Matter on the Audit of the
heading “Other
otherwise be unacceptable, paragraph. The auditor may Financial Statements
Matter”, such
the auditor also and the Report on
Other Legal and
“Emphasis Regulatory
following the Basis of of Matter Requirements.
Opinion section to provide
Emphasis of Matter
appropriate context
paragraph from the
to the auditor’s opinion. individual matters described
Audit Matters section.
in the Key Audit Matters
section.
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Past Papers
Autumn 2016
Spring 2015
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Spring 2011
Spring 2010
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Question Bank
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ISA 300 -PLANNING AN AUDIT OF FINANCIAL STATEMENTS
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Spring 2014
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Autumn 2010
Autumn 2017
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Question Bank
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ISA 330 – THE AUDITORS RESPONSES TO ASSESSED RISKS
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Question Bank
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ISRE 2400
Engagement to Review Historical Financial Statements
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Requirement Description
ETHICAL REQUIREMENT Same
PROFESSIONAL SKEPTICISM Same
ENGAGMENT LEVEL QUALITY CONTROL Engagement partner shall take responsibility of
• Overall quality of each review
engagmene to which that partner is
assigned
• Direction, supervision, planning and
performance of the review engagement
• Report being appropriate in the
circumstances
• Engagement being performed in a/c with
the firm’s quality control policies
including proper client acceptance and
continuance are satisfied, engagemen
team has appropriate competency and
capabilities
AUDIT BY IBRAHIM
COMPLIANCE WITH ETHICAL REQUIREMENT SAME

FACTORS AFFECTING ACCEPTANCE AND Unless required by law shall not accept
CONTINUANCE OF CLIENT RELATIONSHIP engagement if:
• the practitioner is not satisfied that there is a
rationale purpose (intend to associate name
in an inappropriate manner and requirement
is for audit) of the engagement and review
engagement would be appropriate in the
circumstances
• ethical requirment including indepence
would not be satisfied
• doubt over management integrity
• imposed limitation
PRECONDITION Same
ENGAGEMENT LETTER Same
A statement that engagement is not an audit and
that the practitioners will not express an opinion
on the financial statement
Recurring engagement and acceptance for same
change in terms of review engagement
Materiality Same
Practitioners understanding Same as isa 315
Designing and performing procedures Same as different
Related parties Same
Fraud and non compliance with laws and Indication or suspected fraud or non compliance:
regulations • communicate to appropriate level
• request management assessement
• consider the effect of above on practitioner
conclusion
• should communicate to any other party
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Going concern Same: Procedures should be inquiry

Use of work performed by others Same
Subsequent event Same
Written representation Same
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REASONABLE ASSURANCE LIMITED ASSURANCE
A high but not absolute level of Moderate level of assurance
assurance
Expressed in positive form Expressed in negative form
The objective of statutory audit is to The objective of review engagement
provide reasonable assurance is to provide limited assurance
Extensive audit procedures such as Procedures primary limited to inquiry
confirmation, vouching, bank and analytical procedures
statement etc.
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CAF 09 – Past papers
Autumn 2015
Autumn 2015
Autumn 2014
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CAF 09 – Past papers
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COMPANIES ACT 2017
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Companies Act – Past Papers
Spring 2018
Spring 2017
AUDIT BY IBRAHIM
Autumn 2016 - Q.7
Daud and Company, Chartered Accountants (DC), has received an offer for appointment as
auditor of Jamal Limited (JL). Wife of Daud is a Shareholder and Director in Royal Limited (RL).
Required:
In accordance with the requirements of the Companies Ordinance, 1984, state whether and
under what circumstances DC could accept the audit, under each of the following situations:
(a) JL holds 51% shareholding in RL. (03)
(b) JL is an associated company of RL. (05)
(c) One of the directors in JL also holds 10% shareholding in RL. (02)
Spring 2016 – Q.4
Justify giving reasons whether the appointment of auditors in the following cases is in
compliance with the requirements of Companies Ordinance, 1984.
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a) Kashif and Company, Chartered Accountants (KC) has received an offer for appointment as the
auditor of National Electricity Limited (NEL). On the request of one of the partners of KC, NEL has
allowed him to pay his last month’s electricity bill amounting to Rs. 150,000 in monthly
installments of Rs. 15,000 each. (03)
b) Zubair and Company, Chartered Accountants (ZC) has received an offer for appointment as
auditor of Haroon Limited (HL). Saima, who is the wife of a partner of ZC, is the chief executive of
Jameel Limited (JL). JL is an associated company of HL. Saima also holds 100,000 shares in JL. (03)
Spring 2015 – Q.2
Comment on each of the following situations with reference to the appointment of external
auditors in accordance with the requirements of the Companies Ordinance, 1984.
a) ABC Limited and DEF Limited are associated companies on account of common directorship.
AUDIT BY IBRAHIM
Salman and Company, Chartered Accountants (SCC) have received an offer for appointment as
the auditor in ABC. Salman, a partner in SCC is the spouse of Naveen, who is an employee in DEF.
(02)
b) All the partners of Kashif Associates are Cost and Management Accountants. The firm has
received an offer for appointment as the auditor of Nihal (Private) Limited (NPL). NPL has a paid-
up capital of Rs. 500,000 and 30% of its shares are held by Siyal Limited which is a public
company. (03)
Spring 2015 – Q.1(c)
The external auditors are normally appointed by the shareholders at the annual general meeting
(AGM) of the company. State the exceptions to this rule. (03)
Autumn 2014 – Q.2(a)
Your firm is the auditor of ABD Limited (ABDL). After the acquisition of majority shareholding in
HG Motors (Private) Limited (HGM), ABDL has decided to replace the existing auditors of HGM in
the next annual general meeting and has approached you for appointment as HGM’s auditors for
the next year.
Required:
In the light of the Companies Ordinance, 1984 explain the procedures to be followed and
formalities to be complied with for appointment of your firm as the auditor of HGM. Also explain
the rights of the existing auditors in this situation. (08)
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Spring 2014 – Q.2
Comment on the following independent situations, with reference to the requirements of the
Companies Ordinance, 1984.
(a) Mateen has recently joined Humayun and Company (HC), a firm of Chartered Accountants, as
a Director with a commitment of being promoted as a partner in due course. HC is the auditor of
Strawberry Limited (SL). Mateen was previously associated with SL as a Director. He left that job
in 2011 but still holds 1,000,000 shares in SL. (03)
(b) Khawar is a partner in Ghalib and Company, Chartered Accountants. He writes occasionally as
a Free Lancer for ‘Investment Times’, a leading Financial Magazine. Ghalib and Company are the
auditors of Financial Press Limited, publisher of Investment Times. Khawar has received a
remuneration of Rs. 20,000 for his articles published in the magazine. (02)
(c) Hamid is a partner in a Chartered Accountant firm and holds 100,000 Term Finance
AUDIT BY IBRAHIM
Certificates in Sona Fertilizers Limited (SFL). Hamid’s firm is considering to accept the audit of
SFL. (02)
Autumn 2013 – Q.5
Comment on each of the following independent situations in the light of the requirements of the
Companies Ordinance, 1984:
a) Khan and Company, Chartered Accountants has received an offer for appointment as auditors
of Good Bank Limited (GBL). Shahid is a partner in Khan and Company. He has obtained a
personal finance of Rs. 450,000 from GBL and also holds GBL’s credit card. The outstanding
balance on his credit card is Rs. 100,000. (03)
b) Abid is a partner in AFL & Company, Chartered Accountants. AFL has accepted an offer for
appointment as auditors of Saima Limited (SL). Saima, the wife of Abid, owned 11% shares in SL.
She also works as SL’s General Manager Marketing. Saima disposed of the shares held by her to
Abid’s father, within 30 days of the appointment of AFL but continues to remain employed in SL.
(03)
Spring 2013 – Q.3
Comment on each of the following independent situations with reference to the applicable
requirements of the Companies Ordinance, 1984.
a) Jahangir (Private) Limited (JPL) has a paid-up capital of Rs. 2.5 million. Till recently, it was a
wholly owned subsidiary of Malik Limited (ML). Recently ML has disposed of 60% of its holding in
JPL to Zubair Enterprises (ZE), a partnership firm. All the partners in ZE are on the Board of
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Directors of ML. JPL intends to appoint Mr. Ahsan as its auditor. Mr. Ahsan is an MBA and his
brother is also a partner in ZE. (03)
b) A notice for appointment of Kashif and Company, Chartered Accountants (KCC) was received
by Khanewal Limited (KL), fourteen days before the AGM. The notice was served by Mr. Iqbal,
who is a holder of 500,000 non-voting preference shares. (02)
c) Mr. Khan is a partner in a firm of Chartered Accountants. He also holds 70% shares in Khan
Limited, (KL). Construction Bank Limited (CBL) has granted a loan of Rs. 10 million to KL. Mr.
Khan’s firm has received an offer for appointment as auditor of CBL. (02)
Autumn 2012 – Q.8
Comment on each of the following independent situations with reference to the applicable rules
and regulations.
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a) Zaman is a partner in a firm of Chartered Accountants and holds 5,000 shares in Mardan Limited
(ML). His firm has received an offer for appointment as auditors of Khanewal Limited (KL). ML and
KL are subsidiaries of Dera Khan Limited (DKL). (03)
b) Bilal and Company has received an offer for appointment as auditors of IJK Limited. The total
paid up capital of the company is Rs. 990 million whereas its ordinary share capital is Rs. 130
million. Faryal, the wife of a partner in Bilal and Company, is a director in LMN Limited which
holds 50 million non-voting preference shares and 2 million ordinary shares in IJK Limited. Faryal
also holds 10,000 shares in LMN Limited. The par value of both types of shares is Rs. 10 each.
(04)
Spring 2012 – Q.6
Comment on each of the following independent situations with reference to the applicable rules
and regulations.
a) Waqar is a partner in Sohail and Company, Chartered Accountants, who are the auditors of
Wasim Limited for the year 2011. Aqib who was a partner of Waqar in 2008 in his food business,
has recently been appointed as a Director of Wasim Limited. (02 marks )
b) Aleem, Asif and Company (AAC), Chartered Accountants, has accepted an offer for appointment
as auditors of Gul Limited (GL). Kamal who is a partner in AAC, held 5000 shares in GL. Within
thirty days of acceptance, he gifted the shares to his son Kamran, who is a manager in AAC. (06
marks )
c) Sajid, Hameed and Company (SHC), Chartered Accountants, are the auditors of Mir Hasan
Limited (MHL). Kashif is a senior manager in SHC and is being promoted as a partner. He teaches
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auditing in a college. The college is owned by a trust whose trustees include two directors of MHL.
(02 marks )
d) Saleem is a partner in Orange and Company, Chartered Accountants. He also practices as a sole
proprietor and has received an offer for appointment as auditor of ABC Financial Services Limited
which is a subsidiary of DEF Bank Limited. The balance outstanding against the credit card issued
by DEF Bank Limited to a partner of Orange and Company is Rs. 510,500. (02 marks)
Autumn 2011 – Q.4
Comment on each of the following independent situations in respect of appointment of auditors,

with reference to the applicable rules and regulations:
a) Guava and Company, Chartered Accountants, have received a request for appointment as
auditor of Orange Bank Limited (OBL). Most of the partners of Guava and Company maintain their
accounts with OBL and are enjoying credit card facilities from them. The maximum outstanding
AUDIT BY IBRAHIM
balance on the credit card facility, due from any partner is Rs. 399,000.
b) Apricot and Company, Chartered Accountants, have received an offer for appointment as
auditor of Banana Limited. Mr. Pumpkin who is a nominee director of the Government on the
Board of Directors of Banana Limited holds 25% shares in Water Melon Limited. The spouse of a
partner also holds shares in Water Melon Limited.
c) Mr. Zaheer, a legal practitioner, has received an offer for appointment as external auditor of
Lychee (Private) Limited (LPL). The paid up capital of LPL is Rs. 1,500,000 of which 40% is owned by
Blue Black Limited, a listed company.
d) Walnut and Company, Chartered Accountants, have received an offer for appointment as
external auditors of Wasim (Private) Limited (WPL), in place of the previous auditors, who were
removed before the completion of their term. You may assume that WPL has completed all the
legal formalities before removing the previous auditors.
e) Mr. Sadiq has recently joined your firm as a partner. He has served on the Board of Directors of
Strawberry Limited (SL) until 30 June 2009, as a Government nominee. In the Annual General
Meeting of SL held on 31 August 2011, a shareholder has proposed the name of your firm for
appointment as the external auditors for the year ending 30 June 2012. (11 marks)
Spring 2010 – Q.1
Comment on each of the following situations with reference to the appointment of external
auditors in accordance with the requirements of the Companies Ordinance, 1984:
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a) Farrukh& Co., Chartered Accountants, has received an offer to be appointed as the external
auditor of Ebrahim Gas Company. The firm is indebted to the company as it has not paid the last
two months’ bills amounting to Rs. 4,860.
b) After seventy days of incorporation, the directors of Rahman Limited (RL) decided to appoint
Mr. Shahid as the
company’s statutory auditor. Mr. Shahid was employed by RL before he started his own practice.
c) The directors of Fazal Limited (FL) have decided to appoint Syed & Company, Chartered
Accountants, as external auditor of the company. One of the partner’s spouse holds 1,000 shares
in the subsidiary of FL.
d) The directors of Najam (Pvt.) Limited having paid-up capital of Rs. 4.5 million have appointed
Mr. Dawood to act as the external auditor of the company. Mr. Dawood has been awarded a
diploma in International Financial Reporting Standards by the Institute of Chartered Accountants
of Pakistan and has completed the mandatory period of training from a leading firm of chartered
AUDIT BY IBRAHIM
accountants.
e) All directors of Hussain Associates (Pvt.) Limited are chartered accountants. The company has
recently received an offer for appointment as the external auditor of Masood (Pvt.) Limited
which has a paid-up share capital of Rs. 1,000,000. (10)
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Internal Control
Past Paper
Autumn 2015
Summer 2015
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Autumn 2013
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Spring 2018
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Autumn 2018
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Autumn 2017
Summer 2017
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Autumn 2016 - Q.1(c)
In the context of control activities explain what is included in ‘Performance reviews’. (03)
Autumn 2016 - Q.1(e)
Specify any four main categories of general controls that an auditor would expect to find in a
computer based information system. (04)
Spring 2016 – Q.3(a)
Because of its ability to exert influence, management is in a position to perpetrate fraud and
prepare fraudulent financial statements.
Identify six different ways in which fraud may be committed by management through
overriding of controls. (06)
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Spring 2016 – Q.10(a)
Briefly describe the following concepts:

Audit trail in a computerized environment (03)
Autumn 2015 – Q.5
Following IT related controls are being employed at Vision Limited:
(i) The general ledger system is automatically updated with sub-ledger transactions (e.g.
Accounts Receivable) every night through batch processing.
(ii) The system automatically maintains second copies of all programs and data files.
(iii) Access to programs and data files is restricted using passwords.
(iv) Invoices that are entered into the system are physically counted.
(v) Firewalls (software and hardware) are installed to restrict unauthorized access.
(vi) Screen warnings are displayed as regards incomplete processing.
AUDIT BY IBRAHIM
(vii) Vision Limited has service level agreements with reliable software companies, for
technical support.
(viii) Review of output against expected values.
Required:
a) In respect of each control, determine whether it is a preventive, detective or corrective
control. (04)
b) Also classify each of the above between general IT controls and application controls. (04)
Autumn 2015 – Q.1(b)
International Standards on Auditing require an auditor to evaluate the control environment

and assess its effectiveness. State the factors that the auditor should consider in evaluating
the control environment. (04)
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Autumn 2014 – Q.9
Classify the following controls as preventive, detective, or corrective controls. Give brief
reasons to justify your answers.
(i) Training on applicable policies, department policy/ procedures
(ii) Batch totals
(iii) Segregation of duties
(iv) Contingency planning
(v) System logs
(vi) System backup (06)
Autumn 2014 – Q.6
You are the training manager in a firm of chartered accountants. Prepare brief presentation
for newly inducted trainees, on the following:
AUDIT BY IBRAHIM
a) Control Environment and its elements (04)
b) Walk through tests and why these are performed (03)
Briefly explain the components of internal control as referred to in the International

Standards on Auditing. (09)
Spring 2018
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Autumn 2016 - Q.1(c)
In the context of control activities explain what is included in ‘Performance reviews’. (03)
Because of its ability to exert influence, management is in a position to perpetrate fraud and
prepare fraudulent financial statements.
Identify six different ways in which fraud may be committed by management through
overriding of controls. (06)
Autumn 2014 – Q.6
You are the training manager in a firm of chartered accountants. Prepare brief presentation
for newly inducted trainees, on the following:
a) Control Environment and its elements (04)
AUDIT BY IBRAHIM
b) Walk through tests and why these are performed (03)
Briefly explain the components of internal control as referred to in the International

Autumn 2018
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Certificate in Accounting and Finance Stage Examination

The Institute of 3 September 2019
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Audit and Assurance

Q.1 You are the manager of Saba and Company, Chartered Accountants, responsible for the
audit of Tiger Limited (TL). While reviewing the draft financial statements and the
working paper file, following matters have come to your attention:
(i) No subsequent events were identified.

(ii) During the stock count, certain items were physically present but were not appearing
in stock sheets provided by TL. The management informed you that these items
were sold but were not dispatched upon customer request.
(iii) TL has a policy for making full provision against receivables when they become
AUDIT BY IBRAHIM
overdue for 360 days or more. However, three customers were not fully provided for
in accordance with the TL’s policy. The management contented that they are
rigorously following up with these parties and are confident to recover the
outstanding balances very soon.
(iv) There was only one litigation pending against the company which has appropriately
been disclosed in the financial statements.
Required:
Discuss whether it would be necessary to obtain management representation in respect of
above matters. (08)
Q.2 (a) Aslam is a junior member of your audit team. During an informal discussion with
your team members, Aslam has inquired you about the reasons of emphasizing on
professional scepticism when honesty and integrity of the management is not
questionable based on prior experience. Briefly respond to the inquiry of Aslam. (03)
(b) Mention any four general controls over development of new computer information
systems and applications. (04)
(c) Briefly describe any five inquiries that the auditor may make for identifying the risk
of material misstatement due to fraud. (05)
(d) State any five audit procedures that could be performed to obtain sufficient
appropriate audit evidence for determining whether or not a material uncertainty
exists when events are identified that may cast doubt on the entity’s ability to
continue as a going concern. (05)
Q.3 Amjad is the chief executive and major shareholder of a newly incorporated private limited
company. He has offered your firm to be the first external auditor of the company. During
a meeting, he was of the viewpoint that statutory audit exists because it has been legally
mandated and it does not add value to business. However, he believes that audit helps in
finding all major frauds within the company.
Required:
Discuss how you will respond to the viewpoints of Amjad regarding the audit of financial
statements. (07)
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Q.4 You are the job-in-charge on the audit of Ostrich Limited (OL), a food processing
company, for the year ended 30 June 2019. For sending debtor balance confirmations, OL
has provided you the following schedule for the year ended 30 June 2019:
No. of Balance as at 30 June 2019

Debtors
customers Rs. in ‘000
Chain Stores
Store – A 1 5,150
Store – B 1 3,398
Store – C 1 4,236
Supermarkets 30 7,104
Restaurants 500 6,364
Credit balances 3 (1,000)
Total 25,252
There are no overdue and nil balances as on 30 June 2019. The risk of material
misstatement has been assessed as low and controls have been tested.
Required:
Discuss the audit strategy that you would follow for selecting the debtors for balance
AUDIT BY IBRAHIM
confirmation. (07)
Q.5 You are the manager responsible for the audit of Zebra Limited (ZL). ZL normally has
significant sale and purchase transactions with its related parties.
Guide your audit team regarding the audit procedures and related activities that should be
performed for obtaining information relevant to identifying the risks of material
misstatements associated with related party relationships and transactions. (08)
Q.6 You are the job-in-charge on the audit of Sambar (Private) Limited (SPL), engaged in
production and marketing of textile products.
Your team has performed a walkthrough of the sales and receivable process which is
summarized as follows:
(i) SPL has employed a Sales Representative (SR), who is responsible for finding new
customers and taking orders from all customers.
(ii) Orders are recorded on a pre-numbered order form duly signed by the customers.
After taking the customer order, SR mentions the maximum credit limit and credit
time after verbally confirming them with the Director Operations, on the order form.
SR then forwards one copy of the order form to the warehouse and another copy to
the Factory Accountant (FA).
(iii) Warehouse supervisor dispatches the completed order from the warehouse,
accompanied by a manually prepared pre-numbered delivery note. He keeps a copy
of delivery note and sends another to FA.
(iv) FA manually prepares a pre-numbered invoice using the details mentioned on the
order form. FA also ensures that the customer should not exceed the maximum
credit limit after the new order. FA normally sends one copy of invoice to the
customer along with the delivery note and keeps the second copy along with the
order form in the record of accounts department. However, due to delay in receiving
the order information, invoice is sometime sent after the delivery.
(v) Each Friday, FA inputs the week’s invoices into the computerized accounting
software. At each month end, FA prepares age analysis and follows-up with
customers who have not paid within their credit time.
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Required:
Identify the control weaknesses in sales and receivable process of SPL along with their
possible effects and give your recommendations to SPL. (15)
Q.7 You are the audit manager on Beluga Limited (BL) for the year ended 31 August 2019.
The following issues have been brought to your notice by your audit team:
(i) BL has pending tax litigation in which tax department has raised demand of
Rs. 75 million. The matter has been challenged by BL and the decision in this
respect is currently pending with the Appellate Tribunal. BL’s tax advisor is
confident of positive outcome of this litigation. No provision has been made in this
regard; however, it has been disclosed as a contingency in the financial statements.
(ii) On 20 September 2019 one of the warehouses of BL caught fire destroying entire
inventory, furniture, fixtures and equipment. The book values of the destroyed assets
at the time of fire were Rs. 100 million. BL has lodged a claim with the insurance
company.
The draft financial statements for the year ended 31 August 2019 show a profit before
taxation of Rs. 500 million and net assets of Rs. 1,400 million.
AUDIT BY IBRAHIM
Required:
(a) State the audit procedures which may be performed in respect of each of the above
audit issues identified by your team. Also briefly discuss the implications of these
issues on the audit report. (10)
(b) Draft an opinion paragraph to be included in the audit report of BL in accordance
with the requirement of International Standards on Auditing, assuming that the
matter in (i) above is not dealt with in accordance with the requirements of IFRS.
(Basis of opinion paragraph is not required) (05)
Q.8 (a) Shayan has recently been hired as the audit manager in a firm of chartered
accountants which is the auditor of Python Limited (PL). Shayan previously served
as manager finance in PL for three years.
The firm is considering to depute Shayan as the engagement manager for the audit
of PL for the year ended 31 August 2019.
Required:
Identify the possible threats which may arise and discuss their significance. Also,
discuss the safeguards required to mitigate the threats under each of the following
assumptions:
(i) Shayan resigned from PL with effect from 30 June 2019
(ii) Shayan resigned from PL with effect from 30 June 2018 (07)
(b) Your firm has been asked to submit a tender for appointment of an engagement
currently held by another firm of chartered accountant.
Required:
Briefly discuss the safeguards that shall be applied to eliminate any threat(s) or
reduce them to an acceptable level before accepting the engagement. (04)
(c) You are the manager on the audit of Dolphin (Private) Limited for the year ending
31 December 2019. The client has requested you to send an audit trainee on
secondment for October and November 2019 to assist the chief financial officer, as
one of the key staff members of the accounting team has resigned.
Required:
Identify the threat(s) in the above scenario and suggest appropriate safeguards. (04)
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Audit and Assurance Page 4 of 4
Q.9 Plover Limited has recently developed an integrated system for maintaining its financial
records. During testing, following input and processing errors were identified in the system:
Input errors
(i) A non-existent product number was mentioned on the online order form.
(ii) Inward movement of inventory was recorded in some other inventory account.
Processing errors
(i) In the payroll system, all employees of a department were processed at the rate of
Rs. 100 per hour instead of approved rate of Rs. 80 per hour.
(ii) Salaries of few employees were processed twice.
Required:
Identify and briefly describe one application control in respect of each of the above type of
errors, that would have been effective in either preventing or detecting the error. (08)
(THE END)
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The Institute of 22 September 2020

Audit and Assurance

Instructions to examinees:
(i) Answer all NINE questions.
(ii) Answer in black pen only.
Q.1 You are manager responsible for the audit of Oak (Private) Limited (OPL) for the year ending
30 September 2020. The following issues have been brought to your notice by your audit team:
(i) During planning the year-end inventory count, audit team decided to visit third party
premises for inventory valued at Rs. 10 million. Third party has informed that because
of restrictions imposed by the government in the wake of COVID-19, it has limited
AUDIT BY IBRAHIM
number of staff and consequently may not allow the audit team to visit its premises for
inventory count at year-end. However, the audit team may visit its premises on or after
31 October 2020 for inventory count.
(ii) A competitor has alleged that OPL has infringed its patent rights and has taken legal
action for damages of Rs. 500 million. OPL’s independent legal advisor is of the view
that no estimate can be made about the outcome of the case at this point of time. No
provision has been made for the possible loss, however OPL intends to fully disclose it
in the notes to the financial statements.
The projected profit before tax is Rs. 75 million.
Required:
For each of the above issues:
(a) state the audit procedures which may be performed by your audit team. (10)
(b) discuss with reasons, the implication(s) on the audit report. (08)
Q.2 (a) You are manager responsible for the audit of Pine Limited (PL) for the year ended
31 August 2020. PL has large contracts with many government entities. During the year,
the government has significantly reduced its spending which has also affected its
contract volumes with PL. Devaluation of the local currency has also resulted in
increased costs of the materials purchased from overseas suppliers.
During the planning work review, your team has provided you the following ratios:
2020 2019
Gross profit margin 32% 28%
Accounts payable to cost of sales ratio 0.20 0.28
Trade days receivable 90 75
Required:
(i) Explain the fluctuations and inconsistencies in the given ratios.
(ii) State any four key audit procedures which you would perform to address each
issue identified in (i) above. (09)
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(b) Your firm is the statutory auditor of Teak Pakistan Limited (TPL) for the year ended
30 June 2020.
During the final review of audit work, your audit team informed you that TPL uses a
third party software for its payroll. While checking the tax calculation, they identified
an error in the calculation of monthly tax deduction from salary. The audit junior who
performed the test, extrapolated the error over the entire population. This resulted in an
overall short deduction of Rs. 920,985. She concluded that the error was not material
because this amount was less than the audit materiality set at the financial statement
level i.e. Rs. 1,000,000.
Further, she discussed this matter with the TPL’s management who has agreed to deduct
the differential amount from the salary of the next month and will deposit it into
government exchequer. Therefore, she concluded that no accounting adjustment is
required for the year ended 30 June 2020.
Required:
(i) Briefly discuss the conclusion made by the audit junior regarding materiality of
the transaction and recording of the error.
(ii) State the additional steps that you would suggest to your audit team. (Implications
AUDIT BY IBRAHIM
on audit report are not required) (07)
Q.3 During the audit of Cedar Limited (CL), your audit team observed that CL has sold one of its
freehold lands to Maple (Private) Limited (MPL) at a loss of Rs. 10 million. Your team’s
further investigation of the matter and reading of the minutes of the board of directors’ meeting
revealed that:
(i) a director of CL holds 20% shareholdings in MPL which makes this entity as CL’s
related party; and
(ii) MPL would pay 30% of the consideration in cash and the remaining amount over a
period of five years.
Required:
Evaluate the above related party transaction and suggest any eight key audit procedures that
your team should perform in this respect. (10)
Q.4 Consider each of the following independent situations:
(i) Spruce Limited issued its financial statements on 15 September 2020 for the year ended
30 June 2020. On 22 September 2020, your audit team came to know that a major debtor
has filed bankruptcy due to destruction of its production facility in a terrorist attack on
20 August 2020.
(ii) During the audit of Larch Limited (LL) for the year ended 30 June 2020, the audit team
noticed that the management of LL had worked out the net realisable value (NRV) on
the basis of the sales price at year-end. Since NRV was greater than cost, LL recorded
the inventory in the draft financial statements at cost. However, after reporting period,
LL is facing difficulties in selling the inventory at current price level and therefore
considering to revise its prices.
Required:
In each of the above situations, evaluate the need for amendment in the financial statements
and suggest the audit procedures, if any, which the auditor would need to perform. (09)
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Q.5 You are manager responsible for the audit of Bamboo Limited. Your team has asked for your
guidance whether to involve an auditor’s expert for:
(i) valuation of provision for doubtful debts. The provision has significantly reduced by
Rs. 100 million as compared to previous year.
(ii) fixed asset revaluation. The management has recently revalued its fixed assets. The
revaluation surplus has increased by Rs. 80 million.
The draft financial statements show a profit before tax of Rs. 500 million.
Required:
Guide your audit team about involvement of an auditor’s expert. (06)
Q.6 (a) Differentiate between general IT controls and application controls. (04)
(b) The internal auditor of Cyprus (Private) Limited has identified some discrepancies in
the sales revenue. After investigation, it was identified that some unknown changes were
made to the master price-list which resulted in such discrepancies.
Required:
Suggest any three general IT controls and three application controls to prevent
AUDIT BY IBRAHIM
occurrence of such error. (06)
Q.7 You are the audit manager responsible for the audit of Beachwood Textile Limited (BTL). At
the planning stage, your audit team has assessed that there is no significant risk of material
misstatement due to fraud and management override of controls. The audit team’s assessment
is based on the fact that BTL has been an audit client of the firm for the last 10 years and no
material misstatement had been reported in the previous years.
Required:
Guide your audit team with regard to their assessment of risk. (08)
Q.8 Haris Awan has recently been appointed as a partner in HBC Chartered Accountants. Haris
has been assigned the audit of Hemlock Limited (HL). HL has been the firm’s client for the
past 15 years. Haris has asked Babar Raza, manager responsible for the audit of HL for the
last seven years, to assist him in the planning phase. Babar has informed him that:
(i) attitude of HL’s Chief Financial Officer (CFO) has been very aggressive towards audit
team members, particularly at times when questioned on any of his judgements in
relation to accounting matters.
(ii) CFO normally gives us a short deadline for completion of the audit.
(iii) one of the previous audit team members has recently joined HL as Manager Finance
and has ensured us his full cooperation towards the timely completion of the audit.
Required:
Discuss the possible threat(s) which may arise in the above situation, their significance and
the safeguards required to mitigate those threats. (12)
Q.9 (a) In the light of ICAP’s Code of Ethics, state the circumstances where a Chartered
Accountant is required to disclose confidential information. (03)
(b) In the light of Companies Act 2017, describe the requirements for the cost audit and the
person authorized to conduct it. (04)
(c) Briefly explain any four elements of an assurance engagement. (04)
(THE END)
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The Institute of 5 March 2019
Audit and Assurance

Q.1 (a) You are the audit manager in a firm of chartered accountants. During the audit of a
client for the year ended 31 December 2018, the audit team has prepared the following
schedule to summarize the responses from the debtors:
Balance
Debtor account
S.No. Debtor confirmed by Management explanation
balance
the debtor
(i) AB Rs. 500,000 Rs. 500,000 No explanation.
(ii) CD Rs. 800,000 Rs. 700,000 Consignment of Rs. 100,000 was
shipped on 31 December 2018
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and received by customer on

01 January 2019.
(iii) KL Rs. 600,000 Rs. 250,000 Consignment of Rs. 600,000 was
shipped on 27 December 2018 but
goods amounting to Rs. 350,000
were returned due to quality
issues, subsequent to year end.
(iv) YZ Rs. 400,000 No reply No explanation.
received
Required:
Describe the steps (if any) which the audit team may perform in respect of each of the
above debtors. (05)
(b) Tariq Limited (TL) is in dispute with one of its suppliers Hamid (Private) Limited
(HPL) over a claim of Rs. 10 million; due to quality issues with the product. The
management has informed you that negotiations with HPL have concluded and HPL
has agreed to pay Rs. 7 million whereas the rest of the amount would be written off.
TL’s management has provided a written representation to the auditor with respect to
the said receivable. However, they want to preclude the auditor from sending a
confirmation to HPL.
Required:
Evaluate the appropriateness of written representation as audit evidence and
determine the course of action available to the auditor in the above situation. (07)
Q.2 Respond to the following independent situations in the light of International Standards on
Auditing:
(a) Risk of overstatement in revenue was considered as significant risk and was also
communicated to those charged with governance. Discuss whether it should be included
in the key audit matters section. (04)
(b) No such matter arose during the audit which needs to be reported as key audit matter.
Discuss whether the auditor still needs to include key audit matters section in audit report. (02)
(c) A qualified opinion has been expressed. The details of the qualification are also
mentioned in the key audit matters section. Is it appropriate to do so? (03)
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Q.3 You are the audit manager in a firm of chartered accountants. Your audit client Zakir
Textile Mills Limited (ZTML) has emailed you its draft financial statements for the year
ended 31 December 2018 along with certain explanations. The information provided by
ZTML is summarized below:
(i) Extracts from statement of financial position

2018 2017
Equity and Liabilities ------ Rs. in ‘000 ------
Equity and reserves 29,287 22,000
Long-term loan 8,000 12,000
Provision against litigation 1,100 1,000
Trade and other payables 6,400 6,500
44,787 41,500
Assets
Property, plant and equipment 25,100 22,818
Loans to employees 1,000 800
Trade debtors 8,500 8,000
Inventory 7,600 7,000
Cash and bank balances 2,587 2,882
44,787 41,500
AUDIT BY IBRAHIM
(ii) Extracts from statement of profit or loss
2018 2017
------ Rs. in ‘000 -----
Sales 84,000 73,000
Cost of sales 60,400 54,750
Gross profit 23,600 18,250
Expenses 12,850 10,950
Net profit before taxation 10,750 7,300
Taxation 3,463 2,555
Net profit 7,287 4,745
(iii) At the start of the year, ZTML had increased the sale price of its products by 13%.
(iv) The entire long term loan was obtained in 2017. The principal is payable in three
annual instalments along with the amount of interest.
(v) Increase in property, plant and equipment represents additions made during the year,
net of depreciation. There were no disposals during the year.
(vi) ZTML has a policy of giving interest free loan to its employees. The loan entitlement
was reduced during the year from 8 times the gross salary to 5 times of gross salary.
Required:
Using analytical procedures, identify unexplained fluctuations and inconsistencies in the
above scenario. State the key audit procedures which you would perform to address the
issues identified by you. (Maximum of three key audit procedures are required for each issue) (11)
Q.4 (a) Under the Companies Act, 2017, state the procedure to be followed if the board of
directors decides to recommend the reappointment of existing auditor for the next
year. (02)
(b) The board of directors of Alpha Limited intends to re-appoint the existing auditor for
the next year. However, Javed, a shareholder of the company, wants to appoint a
different auditor.
Required:
Briefly explain the procedure that Javed should follow. Also state the responsibilities
of the board in this regard. (06)
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Q.5 You are the audit manager in a firm of chartered accountants. While reviewing the audit
working papers of a client you came across the following audit program on property, plant
and equipment:
Related
S.No. Audit procedures
assertion
(i) Verify reconciliation of ledger balances with the fixed asset Completeness
register.
(ii) Obtain schedule of fixed assets showing opening balances, Accuracy
additions, disposals, depreciation and closing balances.
(iii) Verify the cost of additions to fixed assets and capital work in Accuracy
progress with the related invoices.
(iv) Physically inspect the additions made during the year. Existence &
Ownership
(v) On sample basis select assets and check the depreciation Accuracy
calculation.
Required:
Critically review the audit program and suggest changes or additional audit procedures as
may be necessary. Assume that the assets are carried at cost, no disposal was made during the
AUDIT BY IBRAHIM
year and no impairment testing is required. (11)
Q.6 (a) You are the audit manager in a firm of chartered accountants. Your firm has been
appointed as the auditor of a listed company, Rustam Raees Limited (RRL) for the
year ending 31 December 2019. RRL has been publishing their annual financial
statements within one month of the year end and have set strict deadlines for the
completion of audit. Further, this year, RRL has changed its accounting policy
relating to property, plant and equipment, from historical cost to revaluation model.
Required:
List the matters (related to the given scenario only) which you would like to include in (04)
the engagement letter, along with their justification.
(b) Ameer Welfare Trust (AWT) is engaged in providing education and three daily meals
to the underprivileged citizens of the society. Donation collection kiosks have been
established at various public spots which collect donations predominantly in cash.
The constitution of AWT states that administration costs should not exceed 10% of its
income. Due to this restriction, AWT has employed only one accountant who works
on part time basis.
The constitution further requires AWT to maintain separate bank accounts for
donations collected for education and meals. Donors are requested to mention the
purpose of donation. Donation received for a specific purpose cannot be spent for any
other purpose.
Required:
Identify the risks which AWT’s auditor would need to consider. (05)
Q.7 (a) Discuss the term ‘performance materiality’ and the purpose for which it is used. (03)
(b) State the matters to be documented by the external auditor if he uses the internal
auditor for providing direct assistance on the audit. (04)
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Q.8 Expert Limited (EL) is an unlisted public company engaged in production of various
products. In January 2018, an equipment malfunctioned which caused severe injuries to
some of the workers. EL had paid compensation to the workers but a case for violation of
safety regulations had also been filed by the regulator. On the basis of legal advice, EL had
recorded a provision of Rs. 5 million in its financial statements for the year ended
31 December 2018.
The board of directors approved the financial statements on 01 March 2019 and on the same
date your firm expressed an unmodified opinion. EL plans to issue the financial statements
on 5 March 2019. On 3 March 2019 the court imposed a penalty of Rs. 15 million on EL.
Management of EL informed the auditor accordingly.
Required:
Evaluate the need for amendment in financial statements and state the procedures which the
auditor would need to perform in the above situation. (09)
Q.9 (a) Chand Travels (CT) is a tour operator, which provides airline ticket bookings, hotels
reservations and customized tour packages. CT has recently implemented a software
AUDIT BY IBRAHIM
for maintaining its financial records.
Required:
What do you understand by logical access controls? Briefly describe four logical access
controls that CT should employ. (07)
(b) Describe four controls which CT may employ to reduce the possibility of disruption of
operations. (04)
Q.10 (a) You are the audit manager at a client Exim (Private) Limited (EPL). During the
finalisation meeting with the client, the CFO of EPL admired the performance of the
audit team. He informed that a junior member of the audit team gave valuable
suggestions regarding a trading business which EPL is considering to launch in the
near future, as he had worked as an intern in a large business house involved in similar
business. The CFO also informed that the audit junior has offered to arrange a
warehouse on reasonable rent as he works part time in his brother’s estate agency.
Required:
Identify the threats in the above scenario and suggest appropriate safeguards. (05)
(b) A firm of chartered accountants sometimes issues public notices and advertisements
on behalf of the clients. Further, it also communicates with the prospective clients
while negotiating the services to be offered.
Required:
Under the Code of Ethics for Chartered Accountants:
▪ prepare brief guidelines about the basic principles and matters to be kept into
perspective while making any such communications. (03)
▪ list the activities/statements which should be avoided in order to adhere to the
above principles. (05)
(THE END)
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The Institute of 3 March 2020

Audit and Assurance

Instructions to examinees:
(i) Answer all TEN questions.
(ii) Answer in black pen only.
Q.1 You are the audit senior responsible for the audit of Dragon Pakistan Limited (DPL), a listed
company. DPL operates in the pharmaceutical industry which is highly regulated by the
government and heavy fines are placed on any non-compliance of the regulations.
The main product of DPL is Drug A. The raw material for the production of Drug A is
imported from Switzerland. Drug A has been underperforming for a number of years and is
AUDIT BY IBRAHIM
currently sold at low margins. Last year, a competitor introduced a much improved version
of Drug A.
Considering the tough competition, all the companies in the pharmaceutical industry
including DPL have to continuously carry out research activities for development of new
drugs and improvement of the existing drugs.
Required:
(a) Outline the business risks that exist in DPL. (02)
(b) Identify and briefly discuss the financial statement line items that could be misstated as
a result of the business risks outlined in (a) above. (06)
Q.2 Your firm is the external auditor of Avian Limited (AL), a listed company, for the year
ending 31 March 2020. AL is engaged in the business of construction and selling of
construction material.
During the planning stage, the audit team has noted the following points for your
consideration:
(i) AL’s CEO aggressively follows up with the departmental heads for meeting the
financial targets established by the directors. Performance of senior management at AL
is measured in terms of year-on-year profit growth. There is an internal audit division of
AL and it reports directly to the CEO.
(ii) AL is facing difficulties in fulfilling its contracts for supply of building blocks due to a
sudden rise in the cost of raw material, however no provision has been made in the
financial statements. AL’s CFO explained that provision has not been made as amount
cannot be determined with certainty now and therefore provision will be made next
year, if required. Audit team was of the view that the provision has not been made
because it would significantly affect the profitability of the company.
Required:
Briefly discuss the possible ‘fraud risk factors’ from the above scenario. (09)
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Q.3 (a) You are the manager responsible for the audit of a newly incorporated company,
Trojan Limited (TL). Following are the extracts from the first draft financial statements
of TL for the year ended 31 December 2019:
Rs. in million
Revenue 12,000
Profit before tax 72
Total assets 13,000
Total liabilities 7,000
Since this is the first year of operation, the profit before tax was quite low. However, as
per the management’s projection, the profit before tax would grow exponentially over
the next three years.
Your audit team has determined the materiality on the basis of profit before tax for the
year ended 31 December 2019. In view of the audit team profit before tax is the main
performance indicator for TL’s board of directors.
Required:
Discuss the appropriateness of the benchmark used by your team in determining the
materiality and suggest the alternative(s) available to your team. (06)
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(b) You are the manager responsible for the audit of Crown Limited (CL) for the year
ended 31 December 2019. Your audit team has informed you that CL is developing a
new product ‘Solar giant’ which would have three times more power generation
capacity than the regular solar panels available in the market. CL had capitalised
development costs of Rs. 40 million in 2018 and Rs. 38 million in 2019. Based on
technical feasibility carried out by the production department, testing of solar giant is in
the right direction and the product would be launched as per plan in June 2020.
However, review of board minutes revealed that CL is facing technical problems that
may delay the launch of solar giant till March 2021. The minutes further revealed that
CL may require to incur further Rs. 50 million for the development of this project. This
would result in increase in selling price that was originally envisaged by CL.
CL’s management is of the view that they would overcome these technical problems
without incurring any additional cost and would launch the solar giant as per original
plan, in June 2020.
The draft financial statements show a profit before tax of Rs. 150 million.
Required:
State the audit procedures which may be performed in respect of above audit issue.
Also discuss the implication of this issue, if any, on the audit report. (08)
Q.4 On the audit of Qalander Limited, your team has performed the following audit procedures
for collecting the audit evidence with respect to understatement of payables against raw
materials:
(i) Verified the amounts recorded in supplier ledgers through underlying supporting
documents.
(ii) Sent direct confirmations to selected suppliers from the list of suppliers appearing in the
payable subsidiary ledgers.
(iii) Reviewed the list of subsequent material disbursements to suppliers from bank ledgers.
(iv) Reviewed unpaid invoices and ensured that they are properly recorded.
Required:
Comment on above audit procedures performed by your audit team in the context of testing
the understatement of payables. Also suggest further procedures, if any, that are required to
be performed with respect to the understatement of trade payables. (07)
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Q.5 (a) An audit junior of your firm has inquired about the following matters relating to an
audit:
(i) Is there any need to evaluate the adequacy of expert’s work, if the procedures
related to competency and independence of the auditor’s expert have been
performed?
(ii) Can an audit firm include a reference to the expert’s work in the audit report so
that the audit firm’s responsibility may be reduced in the areas in which the audit
firm does not have expertise?
Required:
Comment on the above queries raised by audit junior in the light of International
(b) Malta Limited (ML) has been facing problems in running an effective internal audit
department. The directors of ML has shared with you a brief structure, functioning,
roles and responsibilities of the current internal audit department, which are as follows:
The internal audit department is headed by Hina Akram, a Chartered Accountant. She
AUDIT BY IBRAHIM
works in close coordination with CFO and CEO. She prepares audit plan for each
quarter by herself. All the internal audit findings are first discussed at length with both
the CFO and the CEO and are then presented to the audit committee.
Hina’s internal audit team comprises of three members, Usman, Kashif and Amna.
Usman is responsible for the audit of treasury and payments, Kashif is responsible for
the audit of procurement, payables and production and Amna is responsible for the
audit of revenues, receivables and assets, for the last three years. Hina believes that the
continued involvement of her team in the same areas has helped them to develop
expertise in their assigned areas. This also helps her and her team to design internal
controls for the above mentioned areas in an effective manner.
Required:
Identify the deficiencies relating to independence of internal audit department and
recommend measures which should be taken to protect the independence. (07)
Q.6 You are the audit manager in a firm of chartered accountants. During the audit of a client
for the year ended 31 December 2019, the audit team has prepared the following schedule to
summarize the responses from three debtors:
Balance
Balance at
Debtor confirmed by Comment
year-end
the debtor
A Rs. 500,000 Rs. 500,000 Confirmation was received through client.
B Rs. 800,000 Rs. 800,000 Confirmation was received after many
follow-ups with the client. However, the
audit team have come to know that the
confirming party had not received the
confirmation request.
C Rs. 500,000 Rs. 150,000 Consignment of Rs. 500,000 was shipped on
27 December 2019 but goods of Rs. 350,000
were returned subsequent to year-end.
Required:
Evaluate the evidence obtained and describe the steps (if any) which the audit team may
perform in respect of the above debtors. (10)
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Q.7 Sawari Limited (SL) is engaged in the business of assembling motorcycles. Following IT
related matters are under consideration of the management:
(i) SL uses Inventory Management System (IMS) which is connected with the systems of
all its suppliers. IMS generates and sends purchase orders to the suppliers automatically
when the inventory reaches the reorder level. SL has recently been receiving the
complaints of short deliveries. On further inquiry it was revealed that the supplier
received different quantity orders than those actually generated by IMS. Initial
investigation revealed that data was changed during transmission to the suppliers.
(ii) SL’s IT data room maintained at its head office caught fire. All data including last
month backup kept within the premises was lost and critical hardware was also slightly
damaged due to this incident. Consequently, SL’s IT operations suffered a downtime of
ten days.
Required:
Suggest any three mitigating controls against each of the above matters. (06)
Q.8 Wealthy Bank Limited (WBL) is considering to appoint external auditor for the year ending
June 2020. WBL has shortlisted the following three audit firms for appointment as external
auditor and has presented certain matters relating to each of them for your consideration:
AUDIT BY IBRAHIM
Rao Arif & Company, Chartered Accountants
The firm has recently admitted a new partner who worked as CFO till June 2017, of
Noor Engineering Limited, a subsidiary of WBL.
Hatim Tughlaq & Company, Chartered Accountants
One of the partners in the firm has obtained a loan from WBL of Rs. 5 million. The firm has
informed that the partner would not be able to repay the loan till 2021.
Rashid Kareem & Company, Chartered Accountants

Rashid, one of the partners in the firm, has several commercial properties in Lahore. He has
rented out five properties to WBL for its branch operations.
Required:
In the light of the Companies Act, 2017 discuss whether any of the above firms can be
appointed as external auditor of WBL. (06)
Q.9 (a) You are a partner in a firm of chartered accountants. You have received a letter from a
special investigation committee formed by the government to investigate the affairs of
Naqshbandi Limited (NL). Your client Rahim Limited (RL) is the subsidiary of NL.
The investigation committee requires you to submit the details of all the transactions
carried out by RL with NL and its related parties. The committee also requires your
firm to report the transaction value and the arm’s length value of all the transactions.
Required:
In the light of Code of Ethics for Chartered Accountants, discuss any three factors that
your firm should consider while disclosing client information to the investigation
committee. (03)
(b) Your firm has just been appointed as the auditor of Get Fit Gym Limited (GFG) which
operates a chain of high end gyms and fitness centers across the country. The
managing director of GFG is a close friend of the audit manager and the audit was
awarded to your firm through this connection.
In a recent meeting, the managing director of GFG has offered to grant membership to
all the staff members of your firm at 50% discount.
Required:
Evaluate the threat(s) which may arise in the above situation. Also discuss the
safeguards required to mitigate such threat(s). (08)
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Q.10 (a) State any four actions that an auditor should take on identification of a fraud risk
factor. (04)
(b) What do you understand by logical access controls? Briefly describe any four logical
access controls. (06)
(c) Briefly discuss the key characteristics of small sized organisations with respect to
internal controls and risks which the auditor may face in such audits. (06)
(THE END)
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September 2020
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March 2022
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Index
SR.NO TOPIC PAGE NO.

1 EMPLOYMENT WITH CLIENT 1
2 AUDIT CLIENT THAT ARE PUBLIC INTEREST ENTITIES 2
3 Audit Team members entering employment with 3
client
4 RECENT SERVICES WITH CLIENT 4
Currently serving as a Director 5
Temporary personnel Assignment
5 FAMILY AND PERSONAL RELATIONSHIPS 7
6 BUSINESS RELATIONSHIPS 8
7 LOANS AND GUARANTEES 9
8 ACCOUNTING AND BOOK KEEPING SERVICE 10-11
9 RECRUITMENT SERVICES 12
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10 IT SYSTEM SERVICES 13
11 INTERNAL AUDIT SERVICES 14-15
12 LEGAL SERVICES 16
13 VALUATION SERVICES 17-18
14 ADMINISTRATIVE SERVICES 19
15 CORP. FINANCE SERVICES 20
16 LITIGATION SUPPORT SERVICES 21
17 COMPENSATION AND EVALUATION 22
18 TAXATION SERVICES 23-25
19 FEES 26-27
20 REFERRAL FEE 28
21 FINANCIAL INTEREST 29-30
22 LONG ASSOCIATION 31-33
23 PAST PAPERS 34-44
24 Study text 45 - 56
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Employment with client
(a) A former partner who has joined an audit client of the firm; or
(b) A former audit team member who has joined the audit client, if either has joined the audit client as:
(i) A director or officer; or
(ii) An employee in a position to exert significant influence over the preparation of the client’s accounting
records or the financial statements on which the firm will express an opinion.
Self-interest, Familiarity or
Intimidation Threat
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Significant connection remain unless:
The individual is not entitled to any benefits or payments from the firm, unless made in
accordance with fixed pre-determined arrangements,
any amount owed to theYineds ividual is not material to the firm; and No
The individual does not continue to participate or appear to participate in the firm's business or professional
activities. Ye No
The threat will depend on factors such as position of the

individual, involvement with audit team, length of the time since
Firm shall ensure that no significant the individual was a member of the audit team or partner of the
connection remains firm and formal position of the individual within the audit team.
Can accept the engagement after applying following safeguards
E.g., of safeguards
• Modifying the audit plan
• Assigning individuals to the audit team who have
sufficient experience in relation to the individual who has
joined the client; or
• Having an appropriate reviewe review the work of the
former audit team member.
A familiarity or intimidation threat might also be created if a former partner of the firm or network firm has joined an
entity in one of the positions described in paragraph 524.3 A1 and the entity subsequently becomes an
audit client of the firm.
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AUDIT CLIENTS ARE PUBLIC INTEREST ENTITIES
Audit Clients that are Public Interest Entities - Key Audit Partners
524.6 Familiarity or intimidation threats are created when a key audit partner joins the
audit client that is a public interest entity as:
a) A director or officer of the entity; or
(b) An employee in a position to exert significant influence over the preparation of the
client's accounting records or the financial statementson which the firm will express an opinion.
Independence is compromised unless, subsequent to the individual ceasing to be a key

audit partner:
the audit client had issued audited financial statements covering a period of not less than
twelve months; and
AUDIT BY IBRAHIM
individual was not an audit team member with respect to the audit of those financial
statements.
524.7 Senior or Managing Partner (Chief Executive or Equivalent) of the Firm
An intimidation threat is created when the individual who was the firm's Senior or
Managing Partner (Chief Executive or equivalent) joins an audit client that is a public
interest entity as:
(a) An employee in a position to exert significant influence over the preparationofthe

entity's accounting records or its financial statements;
or
(b) A director or officer of the entity.
Independence is compromised unless twelve months have passed since the individual was
the Senior or Managing Partner (Chief Executive or equivalent) of the firm.
Business Combination - Exception
As an exception to paragraphs R524.6 and R524.7, independence is not compromised if the circumstances
set o ut in those paragraphs arise as a result of a business combination and:
(a) The position was not taken in contemplation of the business combination;
(b) Any benefits or payments due to the former partner from the firm have been settled in full,
unless made in accordance with fixed pre-determined arrangements and any amount owed to
the partner is not material to the firm;
(c) The former partner does not continue to participate or appear to participate in the firm's or
network firm business or professional activities; and
(d) The position held by the former partner with the audit client is discussed with those charged
with governance.
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Audit Team members entering employment with client
A firm or network firm shall have policies and procedures that require audit team members to notify the firm or
network firm when entering employment negotiations with an audit client. A self-interest threat is created when a
member of the audit team participates in the audit engagement while knowing that the member of the
audit team will, or may, join the client sometime in the future. Firm policies and procedures shall require
members of an audit team to notify the firm when entering employment negotiations with the client
Self Interest
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Threat
An example of an action that might eliminate such a self-interest threat is

removing the individual from the audit team.
524.5 A3 An example of an action that might be a safeguard to address such a self-
interest threat is having an appropriate reviewer review any significant
judgments made by that individual while on the team.
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Recent Service
with client
Service During the Service Prior to the

Period covered by period covered by the
Audit report Member of the team has recently served as audit report
Dir, Officer or employee with significant
influence over subject matter.
An example of an action that might eliminate such a self-interest threat is

removing the individual from the audit team.
524.5 A3 An example of an action that might be a safeguard to address such a self-
interest threat is having an appropriate reviewer review any significant
judgments made by that individual while on the team.
Self Interest, self-

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review or
Familiarity Threat
The audit team shall not include For example, such threats would be created if a decision
an individual made or work performed by the individual in the prior
period, while employed by the client, is to be
evaluated in the current period as part of the current
audit engagement. The existence and significance
of any threats will depend on factors such as:
• The position the individual held with the client;
• The length of time since the individual left the client;

and
• The role of the professional on the audit team.
Appropriate reviewer Review

the work performed by the
audit team member
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Currently serving as Dir / Officer

of the client
Partner or
employee of the
firm.
o
Serving as Dir / Officer Serving as Company
of the AUDIT client Secretary
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Self-review
Self-review and advocacy
and self- Threat
interest Threat
Routine and administrative nature – permitted

under local laws and regulations and management
make all relevant decision.
Yes
NO
T A partner or employee of the firm

or a network firm shall not serve as The position of Company Secretary has different implications in
a different jurisdictions. Duties might range from: administrative
director or officer of an audit client duties (such as personnel management and the maintenance of
of the firm. company records and registers) to duties as diverse as ensuring
that the company complies with regulations or providing advice
on corporate governance matters. Usually this position is seen to
imply a close association with the entity. Therefore, a threat is
created if a partner or employee of the firm or a network firm
serves as Company Secretary for an audit client. (More
information on providing non-assurance services to an audit client
is set out in Section 600,
Provision of Non-assurance Services to an Audit c lient).
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Temporary Personnel Assignment

Loan of personnel to an audit client. When familiarity and advocacy threats are created by the loan of personnel by a
firm or a network firm to an audit client, such that the firm or the network firm becomes too closely aligned with the views
and interests of management, safeguards are often not available.
A firm or network firm shall not loan personnel to an audit client unless: Providing non assurance service that
would not be permitted under this section 600
Assuming management responsibilities and the audit client is responsible for directing and supervising the activities
of the personnel.
Only for a short period of time
AUDIT BY IBRAHIM
Self-Review, advocacy or familiarity Threat
SAFEGUARDS:
• Conducting an additional review of the work performed by the loaned personnel
might address a self-review threat;
• Not giving the loaned personnel audit responsibility for any function or activity
that the staff performed during the loaned personnel assignment; or
• Not including the loaned personnel as an audit team member might address
familiarity or advocacy threat.
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Family and
Personal
Relationships
Self Interest,
Depend on individual responsibilities on the familiarity or
audit team, the role of the family member and
Intimidation
the closeness of the relationship
d) IFM of an Audit
team member
• Is Dir/Officer of
b) IFM of an audit c) Close Family Between
a) Member of the the audit client
Member is
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team has close team member • Is an employee in • Partner or
relationship with a a position to exert employee of
• An • Dir/Officer significant
person who is not the firm who
employee of the influence over the
an immediate or is not the
of the client preparation of the
close family client’s member and
client with • An
member accounting • Dir/Officer or
significant employee
• Dir/Officer of the influence
records or the
an employee
of the financial
client over of the client
client with statements on
• An employee of financial significant which the firm with
the client with position/p
will express an significant
influence opinion;
significant erformanc influence over
over • Was in such
influence over e or cash accounting
accounting position during
accounting flows any period records/FS.
records/FS
records/FS. covered by the
engagement
or the financial
E.g., of safeguards E.g., of safeguards

• Removing the individual from An individual shall not • Structuring the partner’s/
the audit team participate as an audit team employee’s responsibilities
• Structuring the member to reduce any potential
responsibilities of the audit influence over the audit
team engagement
• Having a appropriate
reviewer review the relevant
audit work performed
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Business Relationships
Such as commercial relationship or common financial interest for e.g.;
• Joint venture
• Arrangements to combine services/products of the firm and client and to market the same
• Arrangements to distribute/market the client’s product or services and vice versa.
Self Interest and Intimidation Threat
Firm, a network firm and Immediate Family member

Member of the team and
Client or its management
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Client or its management and Client or its

management
Unless the financial interest is The significance of any threat

immaterial and the business Unless any such financial interest shall be evaluated and
relationship is insignificant to the firm is immaterial and the relationship
safeguards applied when
and client or its management, the is insignificant to that member,
necessary to eliminate the
business relationship shall not be the individual shall be removed
threat or reduce it to an
entered into, or it shall be reduced to from the audit team.
acceptable level.
an insignificant level or terminated.
The purchase of goods and services from an audit client by the firm, network firm or an
audit team member, or any of that individual's immediate family, does not generally
create a threat to independence if the transaction is in the normal course of business
and at arm's length. However, such transactions may be of such a nature or magnitude
that they create a self-interest threat. Examples of actions that might eliminate such a self-
interest threat include:
• Eliminating or reducing the magnitude of the transaction; or
• Removing the individual from the audit team.
Common Interests in Closely-Held Entities

R520.5 A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not have a business
relationship involving the holding of an interest in a closely-held entity when an audit client or a
director or officer of the client, or any group thereof, also holds an interest in that entity, unless:
(a) The business relationship is insignificant to the firm, the network firm, or the individual as applicable, and the client;
(b) The financial interest is immaterial to the investor or group of investors; and
(c) The financial interest does not give the investor, or group of investors, the ability to control the closely-held entity.
Page 288 of 341

Loans and Guarantees

In determining whether such a loan or guarantee is material to an individual, the combined net worth of the individual and the
individual’s immediate family members may be taken into account.
A. From Bank or B. To or from Audit

Similar Institution client other than A
By or from
Under normal Not under normal
terms to terms and • Firm
procedures • Member of the team
• Immediate family member of the member
Firm and it is
AUDIT BY IBRAHIM
• Member, or
material to firm
• IFM Material to either Immaterial to both
or audit client
Self Interest No threat

Threat May accept the
engagement.
shall not accept a loan
An example of an action that might be a safeguard to

address such a selfinterest threat is having the work Example of such loans are
reviewed by an appropriate reviewer, who is not an audit Home mortgages,
team member, from a network firm that is not a Bank overdrafts,
beneficiary of the loan. Car loans and
Credit card balances etc
A firm, a network firm, an audit team member, or any of that individual’s immediate family shall not have deposits or a
brokerage account with an audit client that is a bank, broker or similar institution, unless the deposit or
account is held under normal commercial terms.
Page 289 of 341

Accounting and book keeping service
Self –Review
Threat
Management is responsible for the preparation and fair

presentation of the financial statements in accordance Accounting and Bookkeeping Services that are Routine or
with the applicable financial reporting framework. Mechanica lin nature require little or no professional
These responsibilities include: judgment. Some examples of these services are:
• Providing payroll services based on client-
• Originating or changing journal entries, or originated data;
determining the account classifications of • Recording transactions for which the client
transactions has determined or approved the appropriate
• Preparing or changing source documents or account classification;
originating data, in electronic or other form, • Posting transactions coded by the client to
AUDIT BY IBRAHIM
evidencing the occurrence of a transaction the general ledger;

(for example, purchase orders, payroll time • Posting client-approved entries to the trial
records, and customer orders). balance;
• Originating or changing journal entries. • Preparing financial statements based on
•Determining or approving the account information in the trial balance.
classifications of transactions. • Calculating depreciation on fixed assets when
the client determines the accounting policy and
estimates of useful life and residual values.
Audit Clients that are Not Public Interest Entities A firm or a network firm shall not provide to an audit client that is
not a public interest entity accounting and bookkeeping services including preparing financial statements on which the
firm will express an opinion or
financial information which forms the basis of such financial statements, unless:
(a) The services are of a routine or mechanical nature; and
(b) The firm addresses any threats that are created by providing such services that are not at an acceptable
level.
E.g., of safeguards;
• Using professionals who are not audit team members to perform the service. Or
Having an appropriate reviewer who was not involved in providing the service review the audit work or
service performed.
Audit Clients that are Public Interest Entities

R601.6 Subject to paragraph R601.7, a firm or a network firm shall not provide to an audit client that is a public
interest entity accounting and bookkeeping services including preparing financial statements on which the firm will
express an opinion or financial information which forms the basis of such financial statements.
R601.7 As an exception to paragraph R601.6, a firm or network firm may provide accounting and bookkeeping
services of a routine or mechanical nature for divisions or related entities of an audit client that is a public interest
entity if the personnel providing the services are not audit team members and:
(a) The divisions or related entities for which the service is provided are collectively immaterial to the financial
statements on which the firm will express an opinion; or
(b) The service relates to matters that are collectively immaterial to the financial statements of the division or related
entity.
Page 290 of 341

The audit process necessitates dialogue between the firm

and the management of the audit client, which might
involve:
No threat to
• applying accounting standards/policies & FS Independence
disclosure requirements provided the firm
• Assessing the appropriateness of financial and
accounting control and the methods used in does not assume Mgt.
determining the stated amounts of assets and Res.
liabilities.; or
• Proposing adjusting journal entries
• Technical assistance on matters such as
▪ resolving account reconciliation problems
or analyzing& accumulating information for
regulatory reporting
▪ conversion of existing financial statements
from one financial reporting framework to
another.
AUDIT BY IBRAHIM
These activities are considered to be a normal part of the
audit process and do not usually create threats as long as
the client is responsible for making decisions
Page 291 of 341

RECRUITMENT SERVICES
Recruiting services might include activities such as:

Self –Interest
• Developing a job description.•Developing a process for identifying and
selecting potential • Screening potential candidates for the role by: Threat
o Reviewing the professional qualifications or competence of applicants and
determining their suitability for the position.
o Undertaking reference checks of prospective candidates.
o Interviewing and selecting suitable candidates and advising on candidates’
competence. Familiarity
• Determining employment terms and negotiating details, such as salary, hours Threat
and other compensation.
Depends on nature of the requested assistance & role of the individual to be recruited
Intimidation
Threat
Any conflict of interest or relationship that might exist
AUDIT BY IBRAHIM
Providing the following services does not usually create a threat as

long as personnel of the firm or network firm does not assume a
management responsibility:
Recruiting Services that are
Prohibited reviewing the professional qualifications of a number
• acting as a negotiator on of applicants and providing advice on their suitability
the client's behalf for the position
• Searching for or seeking
out candidates for such • interviewing candidates and advising on a candidate's
positions competence financial accounting, administrative or control
• Undertaking reference positions
checks of prospective •
candidates for following When a firm or network firm provides recruiting services to an audit
positions. Dir or officer of client, the firm shall be satisfied that:
the entity or senior (a) The client assigns the responsibility to make all management
management decisions with respect to hiring the candidate for the position to a
competent employee, preferably within senior management; and
(b) The client makes all management decisions with respect to the
hiring process, including:
• Determining the suitability of prospective candidates and
selecting suitable candidates for the position.
• Determining employment terms and negotiating details,
such as salary, hours and other compensation.
An example of an action that might be a

safeguard to address such a selfinterest,
a firm shall not provide such familiarity or intimidation threat is using
services professionals who are not
audit team members to perform the
service.
Page 292 of 341

IT Systems Services
(290.195)
B) Examples of services (290.19)

A) Examples of services (290.196) Providing services involving the design or implementation of IT systems
Following IT systems services deemed not that:
to create threat to independence as long
a) form a significant part of the internal control over financial reporting;
as firm does not assume MR or
b) generate information that is significant to the client's accounting
a) Design or implementation of IT systems
that are unrelated to internal control over records or financial statements on which the firm will express an
financial reporting; opinion.
b) Design or implementation of IT systems
that do not generate information forming a
significant part of the accounting records or
financial statements;
c) Implementation of "off-the-shelf'
Self –Review
accounting or financial information
reporting software that was not developed Threat
by the firm if the customization required to
meet the client's needs is not significant;
AUDIT BY IBRAHIM
d) Evaluating and making
recommendations with respect to a system Not Public Interest Entities Public Interest Entities
designed, implemented or operated by
another service provider or the client.
When providing IT systems services to an audit client,

the firm or network firm shall be satisfied that:
a) The client acknowledges its responsibility for
Above IT systems services
establishing and monitoring a system of internal a firm or a network firm
deemed not to create a threat
controls; shall not provide such
to independence provided
b) The client assigns the responsibility to make all services
firm's personnel do not assume
management decisions with respect to the design
a management responsibility
and implementation of the hardware or software
system to a competent employee, preferably within
senior management;
c) The client makes all management decisions with
respect to the design and implementation process;
Factors that are relevant in evaluating the d) The client evaluates the adequacy and results of
level of a self-review threat created the design and implementation of the system; and
by providing IT systems services to an e) The client is responsible for operating the
audit client include: system (hardware or software) and for the data it
• The nature of the service. uses or generates
• The nature of IT systems and the extent
to which they impact or interact with the
client’s accounting records or financial
statements.
• The degree of reliance that will be (290.199) Additional SG
placed on the particular IT systems as part An example of an action that might be a safeguard to address such a self-review
of the audit.
• threat is using professionals who are not audit team members to perform the
service.
Page 293 of 341

Internal Audit Services

(290.189)
Self –Review
1. Monitoring of internal control Threat
2. Examination of financial and operating information
3. Review of the economy, efficiency and effectiveness of operating activities
4. Review of compliance with laws, regulations, management policies and other internal/external
requirements
When a firm uses the work of an internal audit function in an audit engagement, ISAs require the performance of procedures to
evaluate the adequacy of that work. Similarly, when a firm or network firm accepts an engagement to provide internal audit services to
an audit client, the results of those services might be used in conducting the external audit. This creates self-review threat because it is
possible that the audit team will use the results of the internal audit service for purposes of the audit engagement without:
(a) Appropriately evaluating those results; or
(b) Exercising the same level of professional skepticism as would be exercised when the internal audit work is performed by
individuals who are not members of the firm.
605.4 A4 Factors that are relevant in evaluating the level of such a self-review threat include:
• The materiality of the related financial statement amounts.
• The risk of misstatement of the assertions related to those financials statement amounts.
• The degree of reliance that the audit team will place on the work of the internal audit service, including in the course of an external
AUDIT BY IBRAHIM
audit.
Paragraph R600.7 precludes a firm or a network firm

from assuming a management responsibility.
(290.192) The firm shall only provide Performing a significant part of the client’s internal
services if; audit activities increases the possibility that firm or
• The client designates an appropriate and
network firm
competent resource
personnel providing internal audit services will assume
• The client's management or those charged
with governance reviews, assesses and a management responsibility.
approves the scope, risk and frequency of
the internal audit services
• The client's management evaluates the A: Examples of services that involve assuming
adequacy of the internal audit services and
management responsibilities: (290.191)
the findings
• The client's management evaluates and • Setting policies and strategic direction;
determines which recommendations to • Directing and taking responsibility for the actions
implement and manages the of the entity's internal audit employees;
implementation process; and
• Deciding which recommendations from internal
• The client's management reports to those audit services shall be implement;
charged with governance the significant
• Reporting the results of the internal audit
findings and recommendations resulting
activities to those charged with governance on
from the internal audit services
behalf of management;
• Performing procedures that form part of the
internal control, such as reviewing and approving
changes to employee data access privileges;
• Taking responsibility for designing, implementing
(290.193) Additional SG when the results of and maintaining internal control; and
those services will be used in conducting the
• Performing outsourced internal audit services,
external audit:
comprising all or a substantial portion of the
internal audit function, where the firm is
• Using professionals who are not audit responsible for determining the scope of the
team member to perform the internal audit internal audit work and may have responsibility
service for one or more of the matters noted in (a)-(f)
Page 294 of 341

(290.194): Audit clients that are public interest entities; a firm shall not provide internal audit
services that relate to:
a) A significant part of the internal controls over financial reporting;

b) financial accounting systems that generate information that is, separately or in the aggregate,
significant to the client's accounting records or financial statements on which the firm will express an
opinion; or
c) Amounts or disclosures that are, separately or in the aggregate, material to the financial
statements on which the firm will express an opinion.
AUDIT BY IBRAHIM
Page 295 of 341

Legal Services
l
Legal services are defined as any services for which the individual providing the services must either:
a) Have the required legal training to practice law; or
b) Be admitted to practice law before the courts of the jurisdiction in which such services are to be provided.
Self –Review Advocacy

Threat Threat
The significance of threat depends on nature of service and materiality (FS)

AUDIT BY IBRAHIM
A) Acting in an Advisory Role

Contract support.• Supporting an audit Acting as General Counsel
client in executing a transaction. Appointment of a partner or an
employee of the firm as General
• Mergers and acquisitions. Acting in an Advocacy Role. Acting
Counsel for legal affairs of an
• Supporting and assisting an audit in an advocacy role for audit audit client
client’s internal legal department. client in resolving a dispute or
• Legal due diligence and restructuring. litigation GC: (senior management position
with broad responsibility for the
legal affairs of a company)
Factors that are relevant in
evaluating the level of self-review
or advocacy threats created by
providing legal advisory services
to an audit client
include: When the amounts involved
• The materiality of the specific When the amounts involved are material to the financial
matter in relation to the client’s are not material to the statements
financial statements. financial statements
• The complexity of the legal
matter and the degree of judgment
necessary to provide the service.
Examples of safeguards include: (290.204 &

6) A partner or employee of the firm or the
network firm shall not serve as General
• Using professionals who are not audit team Counsel for legal affairs of an audit client or
members to perform the service; or act in advocacy role
• Having an appropriate reviewer who was not

involved in providing the services review the
audit work or service performed.
Page 296 of 341

Valuation Services (other than Tax related)

a`` (290.169)
Making estimates/assumptions and/or application of
appropriate methodologies and techniques for asset,
liability or for a business as a whole
Self –Review or
advocacy Threat
• Factors that are relevant in evaluating the level of threats The use and purpose of the valuation report.
• Whether the valuation report will be made public.
•
AUDIT BY IBRAHIM
Material effect on the FS
The degree of subjectivity inherent in the item for valuations involving standard or established methodologies.
• Extent of client involvement in determining and approving the valuation methodology and other significant
maters of judgment
• The availability of established methodologies and professional guidelines
•
• Degree of dependence of future events
• Extent and clarity of disclosure in FS
Audit clients that are Audit clients that are

Certain valuations do not involve a
NOT public interest entities significant degree of subjectivity. public interest entities
This is likely to be the case when the
IF underlying assumptions are either IF
established by law or regulation, or
are widely accepted and when the
techniques and methodologies to be
Valuation Services used are based on generally accepted
involve significant degree of standards or prescribed by law or
regulation. In such circumstances, Valuation Services
subjectivity AND has material effect on the
has material effect on the the results of a valuation performed
by two or more parties are not likely financial statements
A firm or a network firm shall not provide

a valuation service to an audit
client
Page 297 of 341

Otherwise
E.g., of safeguards;
• using professional who are not audit

team members to perform the service
might address self-review or advocacy
threat
• Having an appropriate reviewer who was not
involved in providing the service review the
audit work or service performed might
address a self-review threat.
AUDIT BY IBRAHIM
Page 298 of 341

ADMINISTRATIVE SERVICES
Providing administrative services to an audit client does not usually create a threat.
All Audit Clients
602.3 A1 Administrative services involve assisting clients with their routine or mechanical tasks within
the normal course of operations. Such services require little to no professional judgment and are clerical
in nature.
602.3 A2 Examples of administrative services include:
· Word processing services.
· Preparing administrative or statutory forms for client approval.
· Submitting such forms as instructed by the client.
· Monitoring statutory filing dates, and advising an audit client of
those dates.
AUDIT BY IBRAHIM
Page 299 of 341

Corp. Finance Services

(290.210)
Factors that are relevant in evaluating the level of such
threats created by providing corporate finance services to an
audit client include:
• The degree of subjectivity involved in determining the
Advocacy Self –Review appropriate treatment for the outcome or consequences of
Threat Threat the corporate finance advice in the financial statements.
• The extent to which:
○ The outcome of the corporate finance advice will directly
affect amounts recorded in the financial statements.
○ The amounts are material to the financial statements.
• Whether the effectiveness of the corporate finance advice
depends on a particular accounting treatment or presentation
in the financial statements and there is doubt as to the
appropriateness of the related accounting treatment or
presentation under the relevant financial reporting
framework.
AUDIT BY IBRAHIM
A) Examples of services (290.210)

n
▪ Assisting an audit client in
developing corporate strategies;
▪ Identifying possible targets for the
audit client to acquire;
▪ Advising on disposal transactions;
▪ Assisting finance raising
transactions; and Corporate Finance Services that are Prohibited
▪ Providing structuring advice
A firm or a network firm shall not provide corporate finance
▪ Providing advice on the structuring of
services to an audit client that involve promoting, dealing in, or
a corporate finance transaction or on
underwriting the audit
financing arrangements that will
client’s shares.
directly affect amounts that will be
reported in the financial statements on Where the effectiveness of corporate finance advice
which the firm will express an opinion. depends on a particular accounting treatment or
presentation in the financial statements and:
a) The audit team has reasonable doubt as to the

appropriateness of the related accounting
treatment or presentation; and
b) The outcome or consequences of the corporate
Safeguards; finance advice will have a material effect
▪ Using professionals who are not

members of the audit team to provide
the services; or
▪ Having a professional who was not

involved in providing the corporate
finance service advise the audit team
on the service and review the
accounting treatment and any
financial statement treatment
Page 300 of 341

Litigation support service

• Assisting with document management and retrieval.
• Acting as a witness, including an expert witness.
• Calculating estimated damages or other amounts that might become receivable or payable as the
result of litigation or other legal dispute.
Self –Review Advocacy

Threat Threat
AUDIT BY IBRAHIM
Factors that are relevant in evaluating the level of self-review or advocacy
threats created by providing litigation support services to an audit client
include:
• The legal and regulatory environment in which the service is
provided, for example, whether an expert witness is chosen and
appointed by a court.
• The nature and characteristics of the service.
• The extent to which the outcome of the litigation support service will
An example of an action that might be a safeguard to address such a self-review or advocacy threat is using a
professional who was not an audit team member to perform the service.
If a firm or a network firm provides a litigation support service to an audit client and the service involves
estimating damages or other amounts that affect the financial statements on which the firm will express an
opinion, the
requirements and application material set out in Subsection 603 related to valuation services apply.
Page 301 of 341

Compensation and Evaluation Policies A key audit partner shall not

(290.221) be evaluated on or
When a member of the audit team is compensated based on that
evaluated on or compensated for selling non- partner's success in selling non-
assurance services to that audit client assurance services to the
partner's audit client.
This is not intended to prohibit
normal profit-sharing
arrangements between partners
of a firm
Self –Interest
Threat
AUDIT BY IBRAHIM
A) Significance of threat depends on (290.221)
• The proportion of the individual's compensation or

performance evaluation that is based on the sale of
such services;
• The role of the individual on the audit team; and
• Whether promotion decisions are influenced by the
sale of such services.
Either; OR
• the firm shall either revise • Removing such members

the compensation plan, or; from the audit team; or
• evaluation process for that • Having a chartered
individual accountant review an
appropriate reviewer
review the work of the audit
team member
Page 302 of 341

Taxation Services
A. Tax return preparation;
B. Tax calculations for the purpose of preparing the accounting entries;
C. Tax planning and other tax advisory services; and
D. Assistance in the resolution of tax disputes.
Factors that are relevant in evaluating the level of threats created by providing any tax service to an
audit client include: Self –Review and
• The particular characteristics of the engagement. Advocacy Threat
• The level of tax expertise of the client’s employees.
• The system by which the tax authorities assess and administer the tax in question and the role of the
firm or network firm in that process.
• The complexity of the relevant tax regime and the degree of judgment necessary in applying it.
A) Tax return preparation; B) 2. Tax calculations for Audit Clients

that are PIE;
• assisting clients with
their tax reporting
obligations including
the amount of tax due If material to the
required to be financial statements,
AUDIT BY IBRAHIM
submitted B) 1. Tax calculations for
firm shall not prepare
• advising on the tax Audit Clients Not PIE;
return treatment of tax calculations.
past transactions Preparing calculations of
responding on behalf current and deferred
of the audit client
taxation for the purpose
Generally based on preparing accounting entries
historical information and that will be subsequently
principally involve analysis audited by the firm creates
and presentation of such
historical information under
self review threat;
existing tax law
Further, the tax returns are

subject to whatever review
or approval process the
tax authority deems
appropriate
Examples of safeguards include
• Using professionals who are not audit

Providing such services team member to perform the service;
does not generally create Having an appropriate reviewer who was not
a threat to independence involved in providing the service review the
if management takes audit work or service performed.
responsibility for the returns
including any significant
judgments made.
Page 303 of 341

C) Tax Planning and Other Tax Advisory

Services
Where the effectiveness of the tax advice
depends on a particular accounting treatment
• advising the client how to structure its
or presentation in the financial statements and:
affairs in a tax efficient manner or
• advising on the application of a new tax a) The audit team has reasonable doubt as to the
law or regulation appropriateness of the related accounting treatment
or presentation under the relevant financial
In addition to paragraph 604.3 A2, factors that reporting framework; and
are relevant in evaluating the level of self-review b) The outcome or consequences of the tax advice
o r advocacy threats created by providing tax will have a material effect on the financial
planning and other tax advisory services to audit statements on which the firm will express an
clients include: opinion;
A. degree of subjectivity involved;

B. material effect on the financial
statements;
C. effectiveness of tax advice depends on
the accounting treatment or
AUDIT BY IBRAHIM
presentation in the financial statements Accordingly, shall not provide such tax advice
and there is doubt as to the to an audit client.
appropriateness of the accounting
treatment or presentation;
D. Whether the tax treatment is supported
by a private ruling or has otherwise
been cleared by the tax authority
before the preparation of the financial
statements.
Examples of actions that might be safeguards

to address such threats include:
• Using professionals who are not audit

team members to perform the service
might address self-review or advocacy
threat;
• Obtaining pre-clearance or advice from
the tax authorities might address self-
review or advocacy threat;
• Having an appropriate reviewer, who
was not involved in providing the
service review the audit work or service
performed might address a self- review
threat.
Page 304 of 341

A firm may be requested to perform a valuation

to assist the client with its tax reporting
obligations or for tax planning purposes
Results will have direct effect on FS; Results will not have direct effect on FS;
A firm or network firm might also perform a

tax valuation to assist an audit client with its
tax reporting obligations or for tax planning 1. Immaterial effect on 3. Material effect on
= purposes where the result of the valuation will FS; or FS; and
have a direct effect on the financial 2. Subject to external 4. Not Subject to
statements. In such situations, the review external review
requirements and application material set
out in Subsection 603 relating to valuation
services apply. Would not generally create a
threat to independence
D) Assistance in the Resolution of Tax
AUDIT BY IBRAHIM
in addition to paragraph 604.3 A2, the following factors are relevant in
Dispute evaluating the level of self-review or advocacy threats created by
providing those services to an audit client:
The firm represents an audit client in the • The extent to which the valuation methodology is supported by tax law
resolution of a tax dispute. or regulation, other precedent or established practice.
• The degree of subjectivity inherent in the valuation.
In addition to paragraph 604.3 A2, factors that are • The reliability and exten t of the underlying data.
relevant in evaluating the level of self - review or Examples of actions that might be safeguards to address threats include:
advocacy threats created by assisting an audit
client • Using professionals who are not audit team member to perform
• in the resolution of tax disputes include: the service might address self-review or advocacy;
The extent to which the matter is • Obtaining pre -clearance or advice from the tax authorities; or
supported by tax law or regulation • Having an appropriate reviewer who was not involved in providing
pother precedent, or established the service review the audit work or service performed might
practice; address a self-review threat.
• Whether the advice that was provided is
the subject of the tax dispute.
• Whether the proceedings are
conducted in public; and
• The role management plays in the 1. Acting as an advocate for an
resolution of the dispute.
audit client before a public
• Material effect on the fs
tribunal or court AND
2. The amounts involved are
material to the financial
statements
The firm is not, however,
precluded from having a
continuing advisory role
Examples of safeguards include (for example, responding to
The firm shall not perform specific requests for
• Using professionals who are not this type of service for an
audit team member to perform the information, providing
audit client.
service might address self-review factual accounts or
or advocacy threat; testimony about the work
performed or assisting the
client in analyzing the tax
issues)
Page 305 of 341

Fees
(29i 0.214)
a
1) Undercutting (240) 3) Fee Overdue
Quoting lower than the fee charged by All or significant portion is unpaid before
previously auditors only when scope and the issue of the audit report for the
quantum of work materially differs from following year.
the scope and quantum of work carried
out by the previous auditor, as it could When a significant part of fees due from an
Self
then be regarded as undercutting audit client remains unpaid for a long time, the
Interest firm shall determine:
(a) Whether the overdue fees might be
equivalent to a loan to the client; and
(b) Whether it is appropriate for the firm to be
re-appointed or continue the audit engagement.
Factors that are relevant in evaluating the

level of such a threat include:
E.g., of safeguards
• Whether the client is aware of the terms of
the engagement and, in particular, the basis Having an additional CA
2) Contingent fee
on which fees are charged and which appropriate reviewer who did
A firm shall not charge directly
AUDIT BY IBRAHIM
professiona l or indirectly a contingent fee not take part in the audit

services the quoted fee covers. for an audit engagement. engagement provide advice or
• Whether the level of the fee is set by an Calculated on review the work performed
independent third party such as a regulatory predetermined basis Discuss the level of outstanding
relating to the outcome of fee with Audit committee or other
body.
transaction/service app. persons at client.
performed. A fee is not Obtaining partial payment of
Examples of actions that might be overdue fees
regarded as being
safeguards to address such a self-interest contingent if established by
threat include: a court or other public
• Adjusting the level of fees or the scope of authority
the engagement.
W.r.t audit engagement W.r.t non-assurance service
• Having an appropriate reviewer review
the work performed.
The threat created would be so

significant that no safeguards could
reduce the threat to an acceptable level
if:
Threat would be so significant a) The fee is charged by the firm material
that no safeguards could reduce or expected to be material to that firm
the threat to an acceptable b) The fee is charged by a network firm
level. that participates in a significant part of
Accordingly, shall not enter into the audit and the fee is material or
such arrangements expected to be material
to that firm; or
(c) The outcome of the non-assurance
service, and therefore the amount of the
fee, is dependent on a future or
contemporary judgment related to the
audit of a material amount in the financial
statements.
Page 306 of 341

Self Interest and intimidation threat 4c) Audit Clients that are
(Dependence + losing) Public Interest Entities
For two consecutive years, total
fees from the client and its
related entities represent more
than 15% of the total fees
4a) Fee Relative Size 4b) Fee Relative Size received by the firm expressing
Total fees from the client Total fees from the client
an opinion on FS:
represents large portion of represents large portion of
the total fees of the firm the revenue from an
The firm shall disclose to TCWG
individual partner's clients or
a large proportion of the of this fact (15%) and discuss
revenue of an individual which of the following
office of the firm. safeguard to apply:
a. (Option 01) Prior to issue of

audit opinion on second year
FS, CA who is not a member of
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E.g., of safeguards the firm, performs an EQCR or
Reducing the dependency
E.g., of safeguards on the client by Increasing Professional regulatory body
Reducing the dependency on the client base of the
the client by Increasing the
(pre issuance review)
partner or office
client base in the firm Having an appropriate b. (option 02) Same procedure
External quality control reviewer who did not take
reviews part in audit engagement as above after the opinion on
Consulting a third party, such review work. second year FS issued before
as a professional regulatory Having a chartered the issuance of audit opinion on
body or a chartered accountant review the
accountant, on key audit
third year FS (post issuance
work or otherwise advise
judgments as necessary; or review)
Regular independent
internal or external quality when total fee significantly
reviews of exceeds or
theengagement.
when the total fee significantly
exceeds 15% or
FACTORS RELEVANT FACTORS RELEVANT IN
IN EVALUATING THE EVALUATING THE LEVEL OF fees continue to exceed each
LEVEL OF THREAT: THREAT: year evaluate whether post
issuance would reduce the
• Operating • Significance qualitatively
structure of the and quantitatively threat or not therefore
firm • Compensation of the consider pre issuance review.
• Firm is well partner is dependent
established or upon fees generated by
new that audit client
• Significance of
the client –
qualitatively
Page 307 of 341

REFERRAL FEE
Receiving and paying referral fee or commission

A self-interest threat to compliance with the principles of objectivity and professional
competence and due care is created if a chartered accountant pays or receives a referral fee or
receives a commission relating to a client.
Such referral fees or commissions include,
for example:
A fee paid to another chartered accountant for the purposes of obtaining new client work when
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the client continues as a client of the existing accountant but requires specialist services not
offered by that accountant.
A fee received for referring a continuing client to another chartered accountant or other expert
where the existing accountant does not provide the specific professional service required by the
client.
A chartered accountant in practice may receive a commission from a third party (for
example, a software vendor) in connection with the sale of goods or services to a
client.
Examples of actions that might be safeguards to address such a self-interest

threat include:
Disclosing to the client any arrangements to pay a referral fee to another

chartered accountant for the work referred;
Obtaining an advance agreement from the client for commission arrangements in
connection with the sale by another party of goods or services to the client might address a
self-interest threat.
• Disclosing to clients any referral fees or commission arrangements paid to, or received
from, another chartered accountant or third party for recommending services or products
might address a self-interest threat.
Purchase or Sale of a Firm

330.6 A1 A chartered accountant may purchase all or part of another firm on the basis that payments will be
made to individuals formerly owning the firm or to their heirs or estates. Such payments are not referral fees or
commissions for the purposes of this section.
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Financial Interest
An interest in equity or other security, debenture, loan or
other debt instrument of an entity
Holding a financial interest in an audit

client may create Self Interest Threat
Depends on
Role of the person

• Direct or Indirect Interest
Materiality of the financial Interest(the
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combined net worth of the individual and the individual’s immediate family members may be taken into account.
A direct financial interest or a material indirect financial interest in the audit client
shall not be held by:
• Close Family
1. Audit team Member
member (who
2. Immediate Family Member , or
the Audit team
3. Firm or network firm
member
4. Any other partner in the office in which an engagement partner practices in connection
with the audit engagement, or any of that knows) has
other partner’s immediate family;
5. Any other partner or managerial employee who provides non- audit services to the audit
client, except for any whose involvement is
minimal, or any of that individual’s immediate family.
• Direct (Control); or
• Material Indirect (not control) FI In the audit client
Factors that are relevant in evaluating the level of such a threat include:
• The nature of the relationship between the audit team member andthe close
family member.
• Whether the financial interest is direct or indirect.
• The materiality of the financial interest to the close family member
Threat created would be so

significant that no safeguards • Having the close family member dispose, as soon as practicable, of
could reduce the threat to an all of the financial interest or dispose of enough of an indirect
acceptable. financial interest so that the remaining interest is no longer material.
Having an appropriate reviewer review the work of the audit
team member
• Removing the individual from the audit team
Page 309 of 341

FINANCIAL INTEREST IN AN ENTITY CONTROLLING AN AUDIT CLIENT

When an entity has a controlling interest in an audit client and the client is material to the entity, neither the firm,
nor a network firm, nor an audit team member, nor any of that individual’s immediate family shall hold a direct or
material indirect financial interest in that entity.
Financial Interests Received Unintentionally

R510.9 If a firm, a network firm or a partner or employee of the firm or a networkfirm, or any of that individual’s
immediate family, receives a direct financial interest or a material indirect financial interest in an audit client by way
of an inheritance, gift, as a result of a merger or in similar circumstances and the interest would not otherwise be
permitted to be held under this section, then:
(a) If the interest is received by the firm or a network firm, or an audit team member or any of that individual’s
immediate family, the financial interest shall be disposed of immediately, or enough of an indirect financial interest
shall be disposed of so that the remaining interest is no longer material; or
(b) (i) If the interest is received by an individual who is not an audit team member, or by any of that individual’s
immediate family, the financial interest shall be disposed of as soon as possible, or enough of an indirect financial
interest shall be disposed of so that the remaining interest is no longer material; and
(ii) Pending the disposal of the financial interest, when necessary the firm shall address the threat created.
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LONG ASSOCIATION
Although an understanding of an audit client and its environment is fundamental to audit quality, a familiarity
threat might be created as a result of an individual’s long association as an audit team member with:
(a) The audit client and its operations;
(b) The audit client’s senior management; or
(c) The financial statements on which the firm will express an opinion or the financial information which forms
the basis of the financial statements.
Threats A self-interest threat might be created as a result of an individual’s concern about losing
Self interest a longstanding client or an interest in maintaining a close personal relationship with a
&Familiarity threat member of senior management or those charged with governance. Such a threat might
influence the individual’s judgment inappropriately.
Evaluation
In relation to • The overall length of the individual’s relationship with the client, including if such
Individual relationship existed while the individual was at a prior firm.
• How long the individual has been an engagement team member, and the nature of the
roles performed.
• The extent to which the work of the individual is directed, reviewed and supervised by
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more senior personnel.
• The extent to which the individual, due to the individual’s seniority, has the ability to
influence the outcome of the audit, for example, by making key decisions or directing
the work of other engagement team members.
• The closeness of the individual’s personal relationship with senior management or
those charged with governance.
• The nature, frequency and extent of the interaction between the individual and senior
management or those charged with governance.
In relation to Audit • The nature or complexity of the client’s accounting and financial reporting issues and
Client whether they have changed.
• Whether there have been any recent changes in senior management or those charged
with governance.
• Whether there have been any structural changes in the client’s organization which
impact the nature, frequency and extent of interactions the individual might have with
senior management or those charged with governance.
Actions • rotating the individual off the audit team
• Changing the role of the individual on the audit team or the nature and extent of the
tasks the individual performs.
• Having an appropriate reviewer who was not an audit team member review the work
of the individual.
• Performing regular independent internal or external quality reviews of the
engagement.
If a firm decides that the level of the threats created can only be addressed by rotating the
individual off the audit team, the firm shall determine an appropriate period during
which the individual shall not:
(a) Be a member of the engagement team for the audit engagement;
(b) Provide quality control for the audit engagement; or
(c) Exert direct influence on the outcome of the audit engagement. The period shall be of
sufficient duration to allow the familiarity and selfinterest
threats to be addressed. In the case of a public interest entity, paragraphs R540.5 to
R540.20 also apply.
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Audit Clients that are PIE

(a) The Subject to paragraphs R540.7 to R540.9, in respect of an audit of a public interest entity, an
engagement individual shall not act in any of the following roles, or a
partner; combination of such roles, for a period of more than seven cumulative years unless the law
(b) The prescribes a shorter period (the “time-on” period):
individual
appointed as
responsible for
the
engagement
quality control
review; or
(c) Any other
key audit
partner role.
Exception As an exception to paragraph R540.5, key audit partners whose continuity is especially
important to audit quality may, in rare cases due to unforeseen
circumstances outside the firm’s control, and with the concurrence of those charged with
governance, be permitted to serve an additional year as a key
audit partner as long as the threat to independence can be eliminated or reduced to an acceptable
AUDIT BY IBRAHIM
level.
For example, a key audit partner may remain in that role on the audit team for up to one
additional year in circumstances where, due to unforeseen events, a required rotation was not
possible, as might be the case due to serious illness of the intended engagement partner. In such
circumstances, this will involve the firm discussing with those charged with governance the
reasons why the planned rotation cannot take place and the need for any safeguards to reduce
any threat created.
Cooling off After the time-on period, the individual shall serve a “cooling-off” period in accordance with
Period the provisions in paragraphs R540.11 to R540.19.
Engagement If the individual acted as the engagement partner for seven cumulative years, the cooling-off
partner period shall be five consecutive years.
EQCR Where the individual has been appointed as responsible for the engagement quality control
review and has acted in that capacity for seven cumulative years, the cooling-off period shall be
three consecutive years.
Other than If the individual has acted as a key audit partner other than in the capacities set out in
above 2 paragraphs R540.11 and R540.12 for seven cumulative years, the cooling-off period shall be
two consecutive years.
Service in a combination of key audit partner roles
Served as the engagement partner for four or more the cooling off period shall be five consecutive years.
cumulative years,
served as the key audit partner responsible for the cooling-off period shall be three consecutive years.
the engagement quality control review for four or more
cumulative years,
Any other KAP the cooling-off period shall be two consecutive years.
Any other
Calculation In calculating the time-on period, the count of years shall not be restarted unless the individual
of time on ceases to act in any one of the roles in paragraph R540.5(a) to (c) for a minimum period.
period This minimum period is a consecutive period equal to at least the cooling-off period determined
in accordance with paragraphs R540.11 to R540.13 as applicable to the role in which the
individual served in the year immediately before ceasing such involvement.
Example of For example, an individual who served as engagement partner for four years followed by three
calculation of years off can only act thereafter as a key audit partner on the same audit engagement for three
time on further years (making a total of seven cumulative years). Thereafter, that individual is required
period to cool off in accordance with paragraph R540.14.
Page 312 of 341

Other In evaluating the threats created by an individual’s long association with an audit engagement, a
Considerations firm shall give particular consideration to the roles undertaken and the length of an individual’s
Relating to the association with the audit engagement prior to the individual becoming a key audit partner.
Time-on There might be situations where the firm, in applying the conceptual framework, concludes that
Period it is not appropriate for an individual who is a key audit partner to continue in that role even
though the length of time served as a key audit partner is less than seven years.
Audit Clients becomes PIE

Requirement If an audit client becomes a public interest entity, a firm shall take into account the length of
of rotation time an individual has served the audit client as a key
audit partner before the client becomes a public interest entity in determining the timing of the
rotation. If the individual has served the audit client as a
key audit partner for a period of five cumulative years or less when the client becomes a public
interest entity, the number of years the individual may
continue to serve the client in that capacity before rotating off the engagement is seven years
less the number of years already served. As an
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exception to paragraph R540.5, if the individual has served the audit client as a key audit
partner for a period of six or more cumulative years when the
client becomes a public interest entity, the individual may continue to serve in that capacity
with the concurrence of those charged with governance for
a maximum of two additional years before rotating off the engagement.
Exception When a firm has only a few people with the necessary knowledge and experience to serve as a
key audit partner on the audit of a public interestentity, rotation of key audit partners might not
be possible. As an exception to paragraph R540.5, if an independent regulatory body in the
relevant jurisdiction has provided an exemption from partner rotation in such circumstances, an
individual may remain a key audit partner for more than seven years, in accordance with such
exemption. This is provided that the independent regulatory body has specified other
requirements which are to be applied, such as the length of time that the key audit partner may
be
exempted from rotation or a regular independent external review.
Page 313 of 341

PAST PAPERS ANALYSIS

S.no Attempt Question
01 Spring 2021 Future Employment
Gifts and Hospitality
Business Relationship
Contingent Fee
02 Autumn 2020 Long Association
03 Spring 2020 Disclosure of client information
Gifts and Hospitality
04 Autumn 2019 Recent Employment
Tendering
Secondment
05 Spring 2019 Business Relationship
Advertising
06 Autumn 2018 Long Association
Preferential Treatment
Family and personal relationship
07 Spring 2018 Gifts and hospitality
Future employment
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Assistance in accounting records

08 Autumn 2017 Recent employment
Business relationship
Taxation service
09 Summer 2017 Preparation of FS
Long association
Family relationship
Business relationship
10 Autumn 2016 Recent employment
Financial interest by father
11 Summer 2016 Employment with client
Lease financing
12 Autumn 2015 Gifts and hospitality
Secondment
Long association
13 Summer 2015 Employment / business relationship
Financial interest by father
Negotiation for employment
14 Autumn 2014 Describe integrity
Describe advocacy threat in give 3 examples
Actual independence and perceived independence
Exception to confidentiality
15 Summer 2014 Long outstanding fee
Shares by brother
16 Autumn 2013 Hotel - business transaction
Financial interest
17 Autumn 2012 House loan
Employment with client
18 Summer 2011 Categories of threats and 2 examples
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CAF LEVEL QUESTIONS:
Spring 2021
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Autumn 2020
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Spring 2020
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Spring 2019
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Autumn 2018
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CFAP LEVEL QUESTIONS:
Summer 2021
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CERTIFICATE IN ACCOUNTING AND FINANCE 8

AUDIT & ASSURANCE

COMPILED BY: MUHAMMAD IBRAHIM, ACA

S.no STANDARD Page Number

INTERNATIONAL STANDARD ON AUDITING 200

INDEPENDENT AUDITORS OVERALL RESPONSIBILITY TO CONDUCT AN AUDIT IN

TO OBTAIN REASONABLE ASSURANCE TO REPORT ON

BEFORE WE DISCUSS AUDITORS RESPONSIBILITY, IT IS NECESSARY TO UNDERSTAND

NOW LETS DISCUSS OBJECTIVE / RESPONSIBILITY OF AN AUDITOR

AUDITOR IS RESPONSIBLE TO OBTAIN REASONABLE ASURANCE

FS as a whole are free material

NOW QUESTION ARISE WHAT IS REASONABLE ASSURANCE

REASONABLE is the ASSURANCE is to

WHY AUDITOR CAN NOT EXPRESS ABSOLOUTE ASSURANCE?

The inherent limitation of an audit arises from:

Preparation of FS Possibility that Fraud may involve There is an

WHAT ARE THE GENERAL REQUIRMENT OF ISA 200

Plan and perform the Exercise professional

Professional Audit evidence that

Overlooking unusual transaction

Over generalizing when drawing conclusion from

Using inappropriate assumptions in determining the

DIFFERENT LEVEL OF ASSURANCE

REASONABLE ASSURANCE LIMITED ASSURANCE

CONCEPT OF STEWARDSHIP, AGENT and ACCOUNTABILITY

ISA 200 PAST PAPERS

AGREEING THE TERMS OF AUDIT ENGAGEMENT

FIRST OBJECTIVE:WHAT IS PRECONDITION

2.Agreement of management or TCWG

WHAT IS PREMISE? And what agreement to be obtained?

Response if preconditions are not present

SECOND OBJECTIVE: AGREEING THE TERMS OF ENGAGEMENT

WHAT TERMS OF AUDIT ENGAGEMENT SHOULD BE INCLUDED IN ENGAGEMENT LETTER?

WHAT ARE THE ADVANTAGES OF ENGAGEMENT LETTER

WHAT ADDITIONAL MATTERS CAN BE COMMUNICATED IN ENGAGEMENT LETTER (OPTIONAL)

Arrangement Arrangement Arrangement to Any restriction of Any obligation to

• circumstances require the terms of the audit engagement to be revised and

ACCEPTANCE OF A CHANGE IN TERMS OF ENGAGEMENT

Change in Misundersta Restriction on the scope of

for the justification given for request

If the auditor is unable to agree to a change of

ENGAGEMENT LETTER FORMAT AS PER ISA 210

PAST PAPERS MODULE D

THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN AN AUDIT OF FINANCIAL

Fraud (Intentional) Error.(Unintentional) Misstatements resulting Misstatements resulting

A. Maintain Professional Skepticism

B. Discussion among Engagement Team

C. Risk Assessment Procedures and Related Activities – OBEJCTIVE 01 – How to identify

C1. Inquiry with the management:

• Management process for identifying and responding to the risk of fraud

C2. Inquiry with Internal Audit

C3. Those Charged With Governance

C4. Unusual or unexpected relationship identified

• Perform preliminary analytical procedures to identify unusual or unexpected relationship

C5. Consider fraud risk factor

• Presumed Significant risk on MOC- Management is in a unique position to perpetrate

TECHNIQUES FOR MOC

E. Responses to the assessed ROMM due to fraud – OBJECTIVE 02

At assertion • Change the nature, timing and extent of audit procedures

F. Evaluation of Audit Evidence - OBJECTIVE

G. Auditor unable to Continue the Engagement

• Entity does not take appropriate action

• Determine the professional and legal responsibility