Financial statement audit: Objective and scope
- To enhance the degree of confidence of intended users in the financial statements
- Through the expression of an opinion by the auditor on whether the financial statements
are presented fairly, in all material respects, or give a true and fair view in accordance with
an applicable financial reporting framework
- By obtaining reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error
Unmodified
- Auditor obtained sufficient appropriate audit evidence to conclude that statements as a
whole are free from material misstatement, whether due to fraud or error
Misstatement
- Difference between amount, classification, presentation, or disclosure of a reported financial
statement item and amount etc. that is required for the item to be in accordance with the
applicable financial reporting framework.
- E.g. inventory is valued only at cost, and not lower of cost or NRV
- Can arise from error or fraud
Material misstatement
- Misstatement, including omissions, that, individually or in the aggregate, could reasonably
be expected to influence economic decisions of users taken on basis of financial statements
,Departure from FRS (Material misstatement)
- Appropriateness of selected accounting policies
- Application of selected accounting policies e.g. changing from FIFO to weighted average
without reason
- Appropriateness or adequacy of disclosures / non-disclosure
Scope limitation
- Client imposed e.g. mgmt. prevents observation of counting of physical inventory
- Condition imposed
o Circumstances beyond control of entity e.g. flood; or
o Circumstances relating to nature or timing of auditor’s work
Pervasive misstatements
- Are not confined to specific elements, accounts or items of statements e.g. assets
- If so confined, represent or could represent a substantial proportion of financial statements
- In relation to disclosures, are fundamental to users’ understanding of statements
Qualified opinion
, Key audit matters (KAM) (for listed entities)
- Matters that, in the auditor’s professional judgment, were of most significance in the audit
of financial statements of current period
- To enhance the degree of confidence of intended users in the financial statements
- Through the expression of an opinion by the auditor on whether the financial statements
are presented fairly, in all material respects, or give a true and fair view in accordance with
an applicable financial reporting framework
- By obtaining reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error
Unmodified
- Auditor obtained sufficient appropriate audit evidence to conclude that statements as a
whole are free from material misstatement, whether due to fraud or error
Misstatement
- Difference between amount, classification, presentation, or disclosure of a reported financial
statement item and amount etc. that is required for the item to be in accordance with the
applicable financial reporting framework.
- E.g. inventory is valued only at cost, and not lower of cost or NRV
- Can arise from error or fraud
Material misstatement
- Misstatement, including omissions, that, individually or in the aggregate, could reasonably
be expected to influence economic decisions of users taken on basis of financial statements
,Departure from FRS (Material misstatement)
- Appropriateness of selected accounting policies
- Application of selected accounting policies e.g. changing from FIFO to weighted average
without reason
- Appropriateness or adequacy of disclosures / non-disclosure
Scope limitation
- Client imposed e.g. mgmt. prevents observation of counting of physical inventory
- Condition imposed
o Circumstances beyond control of entity e.g. flood; or
o Circumstances relating to nature or timing of auditor’s work
Pervasive misstatements
- Are not confined to specific elements, accounts or items of statements e.g. assets
- If so confined, represent or could represent a substantial proportion of financial statements
- In relation to disclosures, are fundamental to users’ understanding of statements
Qualified opinion
, Key audit matters (KAM) (for listed entities)
- Matters that, in the auditor’s professional judgment, were of most significance in the audit
of financial statements of current period
