Scribd
Upload
36 views1 page

Test 1 Isa 200 (Solution)

The document outlines the primary and subsidiary objectives of auditing, emphasizing the auditor's role in ensuring the truth and fairness of financial statements. It discusses the importance of professional judgment in the audit process, including the evaluation of materiality and audit risk. Additionally, it highlights the inherent limitations of audits and the necessity of maintaining professional skepticism to mitigate risks during the audit.

Uploaded by

SR TG
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
36 views1 page

Test 1 Isa 200 (Solution)

The document outlines the primary and subsidiary objectives of auditing, emphasizing the auditor's role in ensuring the truth and fairness of financial statements. It discusses the importance of professional judgment in the audit process, including the evaluation of materiality and audit risk. Additionally, it highlights the inherent limitations of audits and the necessity of maintaining professional skepticism to mitigate risks during the audit.

Uploaded by

SR TG
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

AUDITING

Suggested Answers
Class Test 1 – ISA 200

Q.1 Primary Objective:


To produce a report by the auditor of his opinion of the truth and fairness of financial
statements so that any person reading and using them can have belief in them
Subsidiary Objectives:

i) To detect errors and fraud


ii) To prevent errors and fraud by the deterrent and moral effect of the audit.
iii) To provide spin-off effects, the auditor will be able to assist his clients with accounting,
systems, taxation, financial, risk management and other problem
Q.2 Professional Judgment:

The application of relevant knowledge, training and experience, within the context provided by
auditing, accounting and ethical standards, in making informed decisions about the courses of
action that are appropriate in the circumstances of the audit engagement.

Examples where professional judgment can be used:


a) Materiality and audit risk
b) Evaluating whether the sufficient appropriate audit evidence has been obtained, and
whether more needs to be done to achieve the overall objectives of auditor.
c) The evaluation of management’s judgments in applying the entity’s applicable financial
reporting framework.
d) The drawing of conclusion based on the audit evidence obtained, for example, assessing the
reasonableness of the estimates made by the management in preparing the financial
statements.
Q.3 The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain
absolute assurance that the financial statements are free from material misstatement due to
fraud or error. This is because there are inherent limitations of an audit, due to which most of
audit evidences are persuasive rather than conclusive. The inherent limitations of an audit are:
• The nature of financial reporting;
• The nature of audit procedures; and
• The need for the audit to be conducted within a reasonable period of time and at a reasonable
cost.

Q.4 Maintaining professional skepticism throughout the audit is necessary if the auditor is, for
example, to reduce the risks of:

• Overlooking unusual circumstances.


• Over generalizing when drawing conclusions from audit observations.
• Using inappropriate assumptions in determining the nature, timing and extent of the audit
procedures and evaluating the results thereof.

You might also like