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UNIT DESCRIPTION
This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to conduct the audit of an entity.
LEARNING OUTCOMES
A candidate who passes this paper should be able to:
- Demonstrate an understanding of the regulatory framework governing the external audit of financial statements
- Demonstrate an understanding of International Standards on Auditing where appropriate and the International Code of Ethics for Professional Accountants (including International Independence Standards)
- Implement the process of planning an audit, prepare audit programs and effectively conduct an audit
- Undertake audit risk assessments (excluding group accounts)
- Apply the risk based audit approach to audit of limited companies
- Prepare non – complex audit reports for audit
CONTENT
1.  Nature and purpose of an audit
- Nature and objectives of an audit
- Development of audit (early audit and modern audit)
- Users of audited financial statements
- Features of audits
- Distinction between auditing and accounting
- Types and classification of audits
- Situations when different audits are performed (interim, continuous, final, operational)
- Advantages and disadvantages of various types of audits
- Nature of work done for different audits
- Inherent limitations of an audit
2. Assurance and non- assurance engagements
- Definition and objectives of assurance engagements
- Audit as an assurance engagement
- Elements of an assurance engagement
- Types of assurance engagements (Audit, Review assignments)
- Differences between audit and review engagements
- International Standard on Assurance Engagement-ISAE 3000
- Accepting appointment to perform assurance engagement
- Review of interim financial information – ISRE 2410
- Levels of assurance and reports issued on assurance engagements
- Non-assurance engagements (Agreed upon procedures engagement -ISRS 4400 and compilation assignments-ISRS 4410
- Attestation and direct reporting engagements
3. Legal and professional framework
- Regulatory framework for external audits
- Appointment of the auditors
- Qualifications and disqualifications of auditors
- Removal and resignation of auditors
- Remuneration of the auditors
- Rights and duties of auditors
- Mechanisms of regulations of auditors-role of professional bodies, Audit committee, rotation of audit firms
- Professional ethics/code of ethics for professional accountants
- Importance of the professional ethics
- Basic/fundamental principles for Code of Ethics for accountants
- Other professional guidelines on audit fees, conflict of interest, advertising and publicity and opinion shopping by clients
- Auditors independence /objectivity and its importance
- Threats to independence and
- Threats on adherence to other fundamental principles and safeguards to the threats
- Development and status of ISAs in execution of audits
- Relationship between International Standards of Auditing and National Auditing Standards
- Purposes/importance of adoption of ISA in the
4. Planning and Risk Assessment
- Obtaining, accepting and retention of an audit engagement
- Matters to consider before and after acceptance of nomination
- Pre-conditions of an audit
- Engagement letter, procedure of sending letter, purposes and contents of the letter-ISA 210
- Circumstances for revision of engagement terms
- Understanding the entity and its environment
- Background information about the entity or
- Ways of gathering knowledge about the business
- Reasons/importance of information gathered about the client
- Reasons of review of previous audit files and communication with previous auditors
- Overview of audit process
5. Audit risk assessment
- Components of audit risk (Inherent, Control and Inherent risks)
- Assessment of different types of audit risks
- Factors leading to increase or decrease of inherent, control and detection Risks
- Adoption of risk based audit, reasons and procedure
- Advantages and Disadvantages of the approach
- Evaluating and prioritising risk and control factors
- Mechanisms to minimise the risks associated with client
6. Audit planning
- Purpose and challenges in audit planning
- Planning for new and existing clients
- Development of the overall audit strategy
- Contents of audit planning memorandum/ overall plan
- Relationship between audit strategy and audit plan
- Design of audit programs, importance and problems of the programs
- Impact of material misstatements on audit strategy and degree of work done
- Influence of interim audit work on the year end/final
7.  Audit documentation
- Reasons and importance of audit documentation
- Sources, features and purposes of working papers
- Storage of working papers-permanent audit file and current audit file, auditors note book or diary
- Lien or custody on working papers
- Standardisation of working papers – advantages and disadvantages
- Safe custody and retention of working papers
- Form and content of working papers
- Automated working papers
- Quality control policies and procedures implemented by audit firm
- Objectives of quality controls to the audit firm/ auditors
- Peer review and its objectives
8. Internal control systems and Internal Audit Function
- Internal control systems (ICS)
- Objectives of internal control system
- Component of internal control system
- Features of Internal control system
- Designing of internal control
- Auditors and management responsibility over ICS
- Advantages and disadvantages /inherent limitations of ICS
- Indicators of weaknesses in ICS and actions taken by management
- The evaluation of internal control systems by auditors using Internal Control Questionnaire, Flow charts and narrative notes
- Tests of controls on specific control environments
- Internal controls theory and practice-sales and debtors, purchases and creditors, inventories and work in progress, fixed assets, salaries and wages
- Communication of improvements on ICS weaknesses/ risks associated
– Management letter.
9.   Internal Audit Function
- Scope and objectives of internal audit
- Criteria of using internal audit work
- Areas of support on external auditors’ work
- Internal audit review reports and actions by management and those charged with governance
- Design of risk based internal audit plan
- Internal audit key performance indicators
- Managing and monitoring follow up of audit recommendations made to board/
- Outsourcing internal audit function-advantages and
- Audit committee-functions, merits and
- Internal check systems-scope, features, advantages and disadvantages
- Information technology threats and control
- Auditors duty on compliance with laws and
10. Overview of Forensic Accounting, Errors, Frauds and Irregularities
- Overview of forensic accounting
- Nature, purpose and scope of forensic accounting
- Types of forensic investigations: corruption, asset misappropriation, financial statement fraud, others
- Asset Recovery process and legal framework
11.  Errors, Frauds and Irregularities
- Differences between error and frauds
- Types of errors-omission, commission, principle, reversal of entries
- Types of Frauds-Teeming and lading, ghost employees, window dressing, misappropriation of goods and fraudulent financial reporting
- Causes of frauds and fraud triangle
- Indicators of errors and frauds
- Detection and prevention of errors and frauds and deterrence-role of internal audit
- Materiality and Implications of errors and frauds in the financial statements
- Impact of errors and frauds on the audit plan
- Reporting on error and frauds
- External auditors and Management responsibility on error and frauds
- Auditors professional
12. Audit evidence
12.1 Financial statement assertions and audit evidence
- Types and features of audit evidence (sufficiency, reliability and relevance)
- Audit evidence gathering procedures/ techniques
- Materiality and limitations of audit evidence
- Financial statement assertions and audit evidence
- Audit sampling techniques – statistical and non-statistical
- Analytical reviews procedures- nature, objectives, timing and extent of support evidence
- Types of analytical Procedures-Variance analysis, reasonableness tests, trend analysis
- Using the work of experts- areas of support and considerations
- Using management representations (importance, procedures adopted and matters covered).
13. Auditing in the public sector
13.1 Introduction to auditing in the public sector and regulatory provisions
- Objective and scope of public sector audit (compliance, performance, financial, value for money)
- Establishment, mandate and functions of public sector auditors
- The parties to audit in public sector-auditor, responsible party and intended users
- Role of internal audit function in public entities
- Relationship between external and internal auditors in the public sector
- Audit reports by office of Auditor
- Functions of audit advisory board and executive committee in Auditor General
14. Auditors Reports
- Purposes of auditors’ report and concept of true and fair view
- Legal /Statutory provisions on audit reports
- Basic elements contents of audit reports
- Emphasis of the matter paragraph and key audit matters
- Types and Consequences of different types of audit reports
- Features of unqualified and qualified audit reports
- Reasons for qualifications of audit reports (Limitation of scope, inherent uncertainties, disagreements)
- Types of qualifications-disclaimer, except for and adverse
- Overall audit review and finalisation
- Subsequent events/Post balance sheet events review (adjusting and non – adjusting events, auditor’s responsibility and audit procedures)
- Going concern review (Auditors and management responsibility, indicators of going concern difficulties, audit procedures, mitigation plans and reporting)
- Management representations on contentious matters affecting financial statements like guarantees made, capital commitments, borrowings, unusual accounting
- Review of compliance with accounting policies, opening balances, prior period audits by other auditors
- Format for presentation of independent auditor’s
15.  Auditing in a computerised system
- Audit objectives in computerised systems
- Differences between computerised and manual systems
- Benefits and drawbacks of computerised accounting systems
- Types of controls in computerised systems (Administrative, system development, processing controls, application controls, master files and standing data
- Auditors use of computers in the course of audit
- Planning the audit in computerised systems
- Audit approaches – audit around, with and through the computer and circumstances when each is applied
- Loss of audit trail, causes and measures to mitigate the loss of audit trail
- Computer Assisted Audit Techniques (CAATS) – Audit software and test data
- Types of audit software and functions and types of test data
- Factors considered before using CAATS and steps in CAATS application
- Advantages and disadvantages of CAATS
- Use of embedded audit modules and integrated test facilities
- Information security controls (Encryption, Firewalls, Passwords, Antivirus)
16. Contemporary and emerging issues in audit
16.1Â Â Â Â E- commerce auditing
- Cloud documentation
16.3Â Â Â Â Use of data analytics tools in audit (Anomaly detection, diagnostic analysis, predictive analysis.
Sample Reading and Reference Material
- Kumar, , & Sharma, V. Fundamentals of Practical Auditing. Revised Edition. New Delhi: Prentice Hall India.
- Millichamp, , & Taylor, J. (2018). Auditing (11th edition). Cengage Learning EMEA.
- Johnstone-Zehms, M., Gramling, A. A., & Rittenberg, L. E. (2018). Auditing: A Risk- Based Approach to Conducting Quality Audits. Australia: South-Western / Cengage Learning.
- Whittington, , & Pany, K. (2021). Principles of Auditing & Other Assurance Services (21st edition). New York: McGraw-Hill Education.
- Arens, A., Elder, R., Beasley, M., & Hogan, C. (2016). Auditing and Assurance Services (16th edition). Boston: Pearson.
- Kasneb e-learning resources (link on the Kasneb website).
- Kasneb approved study