AUDITOR’S RESPONSIBILITY

PSA 315
“The objective of the auditor is to identify and assess
the risks of material misstatement, whether due to
fraud or error, at the financial statement and assertion
levels, through understanding the entity and its
environment, including the entity’s internal control,
thereby providing a basis for designing and
implementing responses to the assessed risks of
material misstatement”
PSA 240
“Misstatements in the financial statements can
arise from either fraud or error. The
distinguishing factor between fraud and error is
whether the underlying action that results in the
misstatement of the financial statements is
intentional or unintentional.”
Two types of intentional misstatements are relevant to
the auditor –
1. Misstatements resulting from fraudulent financial
reporting and
2. Misstatements resulting from misappropriation of
assets.
“The primary responsibility for the prevention
and detection of fraud rests with both those
charged with governance of the entity and
management”
 “An auditor conducting an audit in
accordance with PSAs is responsible for
obtaining reasonable assurance that the
financial statements taken as a whole are
free from material misstatement, whether
caused by fraud or error”
 When obtaining reasonable assurance, the
auditor is responsible for maintaining an attitude
of professional skepticism throughout the audit,
considering the potential for management
override of controls and recognizing the fact that
audit procedures that are effective for detecting
error may not be effective in detecting fraud.
 “In accordance with PSA 200, the auditor
shall maintain an attitude of professional
skepticism throughout the audit, recognizing
the possibility that a material misstatement
due to fraud could exist, notwithstanding the
auditor’s past experience of the honesty and
integrity of the entity’s management and
those charged with governance”
PSA 200
“Objective and General Principles Governing an
Audit of Financial Statements,” owing to the
inherent limitations of an audit, there is an
unavoidable risk that some material
misstatements of the financial statements will
not be detected, even though the audit is
properly planned and performed in accordance
with the PSAs.
“The risk of not detecting a material
misstatement resulting from fraud is
higher than the risk of not detecting
one resulting from error”
 “the risk of the auditor not
detecting a material
misstatement resulting from
management fraud is greater
than for employee fraud”
AUDITOR’S RESPONSIBILITY – Fraud & Error
1. Inquiries of Management
2. Assess the risk
3. Perform procedures to determine material misstatements
4. Identify whether it is a fraud or error
5. Obtain written management representation
6. Management should revise the FS if there is material error or fraud
7. If unable to evaluate, the auditor should qualify or disclaim the FS
PSA 250
• Management, with the oversight of those charged with
governance, is responsible for ensuring that the entity’s
operations are conducted in accordance with laws and
regulations.
• Laws and regulations may affect an entity’s financial
statements in different ways: for example, most directly, they
may affect specific disclosures required of the entity in the
financial statements or they may prescribe the applicable
financial reporting framework.
• They may also establish certain legal rights and obligations of
the entity, some of which will be recognized in the entity’s
financial statements. In addition, laws and regulations may
impose penalties in cases of non-compliance.
The following are examples of the types of policies and
procedures an entity may implement to assist in the
prevention and detection of non-compliance with laws and
regulations:
• Monitoring legal requirements and ensuring that operating
procedures are designed to meet these requirements.
• Instituting and operating appropriate systems of internal
control.
• Developing, publicizing and following a code of conduct.
• Ensuring employees are properly trained and understand
the code of conduct.
• Monitoring compliance with the code of conduct and
acting appropriately to discipline employees who fail to
comply with it.
• Engaging legal advisors to assist in monitoring legal
requirements.
• Maintaining a register of significant laws and
regulations with which the entity has to comply within
its particular industry and a record of complaints.
AUDITOR’S RESPONSIBILITY
1. Obtain a general understanding of the legal and regulatory
framework
2. Design procedures to help identify instances of non-compliance
3. Design procedures to obtain sufficient appropriate audit evidence
4. Obtain an understanding of the nature of the act and the
circumstances in which it has occurred and sufficient other
information to evaluate the possible effect on the financial
statements.
5. If there maybe non-compliance, document the findings, discuss
them with management, and consider the implications.
AUDITOR’S RESPONSIBILITY
6. The auditor should obtain written representations about possible
non-compliance
7. If there is non-compliance, request with the management to revise
the FS
8. If precluded to obtain evidence of non-compliance, then the auditor
should issue a qualified or a disclaimer of opinion.