audit

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Recommended: Importance of moral ethics in auditing

An audit is an inspection performed by an independent (unbiased) person of an entity’s financial statements, stating if they are honest and true and comply with an “applicable financial reporting framework”(IFAC 200, 2014). For most entities in the UK, audits are legal requirements under Companies Act 2006. Their purpose is assuring shareholders (sole recipients) of the financial statement’s accuracy in his/her opinion via a report, supported by sufficient, applicable evidence. This encourages investment by enhancing the user’s degree of confidence. This, and the “overall all objectives of the independent auditor” (IFAC 200, 2014) is ISA 200 and applies to most frameworks. Ethical requirements, professional scepticism and appropriate response to audit risks are required under ISA 200.

ISA 315

ISAs (International Standards of Auditing) were introduced to ensure auditors work at the same professional standard by declaring clear responsibilities. It is worth noting ISAs are useful in setting professional standards, but do not address responsibilities relating to legislation (ISA 200), so auditors must personally ensure they conform to law, which prevails over ISAs. All ISAs have similar layouts: introduction, objectives, definitions, requirements and application and any other explanatory material. Being lengthy, this arrangement helps auditors quickly view specific information when required.

ISA 315 (revised, see Appendix A) states when undertaking an audit, the auditor has obligations to “identify and assess the risks of material misstatement in the financial statements, through understanding the entity and its environment” (IFAC, 2013). This means the auditor must know the entity and be able to identify matters that are/ can...

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... therefore increasing user confidence based on the audit report reflecting the honestly and fairness of the entity.

Having the ISA ensures that all auditors have an awareness of the responsibilities, creating an equality for all entities. It is important to differentiate between fraud and error during an audit, as unfair blame can permanently tarnish an entity’s reputation, reducing shareholder confidence.

There is always a chance of material misstatement occurring, whether due to fraud or error. It is impossible to eliminate completely as there is too much information and not enough time or resources to examine everything. With larger and more complex entities having emerged, ISA 315 has never been more relevant, with shareholders needing assurance that the financial statements have been scrutinised and are seen as honest and true in the auditor’s opinion.

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