Auditing Assurance

Auditing Phases

1. Client Acceptance and Continuance

The client acceptance decision process involves the attracting of desirable or potential clients and the
choice of whether to submit a proposal to perform a financial audit for those clients who may be
interested in the firms(Auditor) services.
It is understood that, for the client continuance decision, it applies to existing audit clients excluding the
new ones.
In this initial phase, per the ISA 300 paragraph 6 states that the auditing firm should;
 Perform procedures regarding the continuance of the client relationship and specific audit
engagement
 Evaluate compliance with ethical requirements, including independence
 Establishing an understanding of terms of engagement
Also, client acceptance and continuance include both deciding on acquiring a new client or continuation
of the relationship with an existing one and the type and number of staff required. Internal Standard on
Quality Control 1 (ISQC) states that audit firms should establish policies and procedures for the
acceptance and continuation of client relationships. Typical policies and procedures involved in this
process are;
 Evaluating the client's background -. It involves evaluating the ongoing audit clients and
deciding whether to continue offering audit services to them. Depending on the outcome of
the client continuance evaluation, two types of decision are distinguished: the retention
decision and the resignation decision, Mohammed (2013). The retention decision is the
decision to continue the engagement with the client were as resignation decision involves
the auditor’s decision to terminate its relationship with the existing client.
 Determined whether the auditor will able to meet the ethical requirements regarding the
client
 Communicating with the previous auditor
 Determining the need for other experts
 Select staff to perform the audit and;
 Obtain an engagement letter

With these policies, before accepting a new client and for transparency purposes the auditor should
investigate the client before accepting them. The auditor should assess the potential clients standing in
the business community, financial stability, and relations with its previous auditor. The main purpose of
investigating the client is to ascertain the integrity of the client and the possibility of fraud. If the client is
new it will be difficult for the firm to uncover the possibilities of fraudulent financial reporting. For any
auditing firm, as much as possible they don’t want to be held liable for failure to detect fraud, it will be a
bad reputation for the service provider. Under Internal Standard on Auditing (ISA) 300, if the client has
been audited previously, the new auditor is allowed to contact the previous auditor in compliance with
relevant ethical requirements, to make a proper evaluation whether to accept the engagement. It is by
the standard that both the new and previous auditors must obtain permission from the client before
communication can be made because of the confidentiality requirements for the service recipient. If
permissions are not granted by the client for disclosure of any information from the previous auditor the
new auditor should be wary of accepting the client. Enquiring and gathering information from; bankers,
legal representatives, and background searches of relevant databases are appropriate if the client has
been audited previously audited. After successfully verifying the clients, the preparation of an
engagement letter should be established. An engagement letter is prepared by the auditor when taking
onboard a new client to solidify the arrangements between the client and the service provider.
Preparation of engagement letter should include;

 Its objectives of the engagement; - Expressing an opinion on the financial statements is for the
financial statement audit.
 The responsibilities of management; - Based on the terms and conditions of the engagement
these parts can be varying. For example, proper preparation of financial statements should be
done according to the generally accepted accounting principles (GAAP) and it is the role of the
management.
 The role of the auditor; - For example, conducting audits following GAAS when preparing a
financial audit.
 Limitations of the engagement; - Providing reasonable assurance and factual opinion on
whether financial statements are free of material misstatements. However, if all transaction is
not examined well, possibilities of material errors, fraud, or illegal acts exist and aren’t detected.

Once the engagement letter is approved, both parties are aware of the audit as the letter serves as a
contract detailing the duties and obligations between the two parties that will be involved in the
process. Careful planning should be organized after the client is accepted.

2. Audit Planning
a) General explanatory
The audit planning phase includes procedures such as gaining an understanding of the client including its
business, identifying and assessing possible business risk and materiality assessments, determining an
audit strategy, and determining the type of evidence to collect, based on the risk levels.
Identifying and assess business risk and materiality assessment is important in this stage because it will
help auditors to avoid audit risk, also if the auditors can identify the business risk it will help the auditors
to avoid providing the wrong opinion against the financial statement.
b) Planning Activities;

In this second phase of the process, the service provider is required to establish an overall audit strategy
that sets the scope, timing, and direction of the audit that should act as a guide to develop an audit plan.
Developing an overall audit strategy should include;

 Identifying the characteristics of the engagement that define its scope.

 Determining the reporting objectives of the engagement to correctly plan the timing of the audit
and the nature of communications required.
 Take into consideration the auditor's professional judgment, which is significant in directing the
team’s efforts.
 Considering the results of preliminary engagement activities.
 Determining the nature, timing, and extent of resources necessary to execute the engagement.
The ideology of carrying out the overall audit strategy will help to assist the service provider to
determine, subject to the completion of the auditors’ risk assessment procedures, such matters
including;

 Resources to deploy for the audit areas. For example, using experienced team members for high-
risk areas or involving specialists on complex problems.
 Specifying the number of resources for the specific audit areas. For example, for materiality
locations the number of team members to observe the inventory.
 The exact time, and date for the resources to deployed and used. For example, whether at an
interim audit stage.
 Managing these resources, directed and supervised. For example, when team briefing and
debriefing meetings are expected to be held.
An audit plan can be developed after establishing the overall audit strategy, purposely to address the
various matters identified in the audit strategy considering the need to achieve the objectives through
the effective use of the auditors’ resources. The overall audit strategy and detailed audit plan sequential
processes are not distinguished but they interrelated because changes in one will have a consequential
effect with the other.
It is important to carefully plan because it will help the service providers to reduce the level of audit risk
to an acceptable low level that is consistent with the objective of the process.

When developing an audit plan the auditor should include a description of;
 And by the requirement under ISA 315, the nature, timing, and extent of planned risk assessment
procedures.
 Under ISA 330, the extent of further audit procedures at the assertion level.
 Other required planned procedures to be carried out so that the engagement complies with the
International Standard on Auditing (ISA).
In this context, the audit plan is more comprehensive than the general audit strategy.
Planning of these procedures takes place over the process of the audit as the audit plan for the
engagement develops. For example, initially, the planning of auditors’ risk assessment procedures should
be done earlier in the process. Therefore, the outcome of the risk assessment procedures will determine
the planning of nature, timing, and additional specific further audit procedures. Besides, at this stage, the
service provider will begin the execution of further audit procedures for different transactions, account
balances, and information disclosures before mapping all other remaining further audit procedures.
c) The Role and Timing of Planning
The size and complexity of the entity, previous engagement team member's experience, and the effective
changes in circumstances that occur during the audit engagement will determine the nature and extent
of planning activities.
Planning is a process that begins after the completion of the previous audit and continues until
completion of the current audit, it is considered to be a continual and iterative process. Also, planning
includes taking into account the timing of different activities and other audit procedures that needs to be
completed before the performance of further audit procedures. For example, considering the auditors’
identification and assessment of the risks of materiality misstatement, such matters as;
 Applying analytical procedures as risk assessment procedures.
 Observing gaining knowledge on the legal and regulatory framework that should be used by the
entity and the ideas on how the entity is complying with the framework.
 Determination of materiality
 Involvement of experts
 Performance of other risk assessment procedures

The decision to discuss the elements of planning with the entity’s management is made by the service
provider, purposely to facilitate conduct and management audit engagement. For example, tasking
some of the entity’s personnel to execute some of the planned audit procedures. Although these
discussions often occur, the overall audit strategy and audit plan remain the responsibility of the service
provider. However, when discussing not all matters are presented with the client management as it will
compromise the effectiveness of the audit process.

3. Identifying Risks
CONCEPT OF AUDIT RISK
Generally, risk can be defined as the level of uncertainty that the auditors accept when performing an
audit process. The risk of auditors to issue unqualified reports due to failure to detect material
misstatement because of error or fraud is called Audit risk. The audit risk needs to be reduced to an
acceptable low level by the auditor based on their professional judgment.
What is an acceptable Audit risk?
It refers to the risk the auditor is willing to take after giving an unqualified opinion about the financial
statement which is materiality misstated. Thus, the higher the risk, the less evidence is to be collected.
Factors that create the risk.
 Nature of the audit test. For example, using incorrect sampling
 Inherent Limitation- For example, human errors and carelessness
 Uncertain audit conclusion- Happens when evidence cannot be found.
And to identify misstatement, service providers will use the Audit Risk Model to estimate where
misstatement would occur and help to produce respond for the risk. Furthermore, the Audit risk model is
where the inherent risk, control risk, and detection risk are used to get the acceptable audit risk or it can
be illustrated using the formula;
ACCEPTABLE AUDIT RISK = INHERENT RISK x CONTROL RISK x DETECTION RISK

CONCEPT OF THE MATERIALITY

This refers to the information of misstatement that influences the economic decisions based on financial
statements. With the concept, most of the financial information is judged on its qualitative and
quantitative characteristics. It said to have the relative concept rather than the absolute concept, that is
why the basis (to evaluate materiality) such as; turnover, profit before tax, total assets, and equity are
needed when evaluating materiality. Furthermore, qualitative factors also affect materiality where
certain types of misstatement are also important even its monetary amount is the same. Consider these
examples to clarify;
 The amount of fraud is more important than the errors because it reflects the honesty and
reliability of the personnel. Given the scenario; intentional inventory misstatement is more
important than inventory clerical errors.
 When the small amount of misstatement could be material if possible consequences arise from
contractual obligation. Given the scenario; the bank required sufficient net working capital to
grant loans. If net-working capital is less than the required minimum, a loan may be put in default
if any misstatement is material.
 Immaterial misstatement may be material if the trend in earning is affected. Given the scenario;
the previous year’s earnings increase by 5% every year. Suddenly current year earnings decrease
by 1%. Thus, misstatement may be material to maintain the trend.

Therefore, considerable professional judgment is required because there are no specific rules or
standards in determining materiality.

The types of risk that are involved in determining the acceptable audit risk;

a) Control Risk; - refers to the misstatement that may occur but it is not prevented or detected by
the client’s internal control mechanism. The purpose of the control risk is to identify whether
the internal control effective in preventing or detecting misstatements and auditor’s intention to
make risk below the maximum rate as part of the audit plan. Effective internal control reduces
the control risk. Thus, it the responsibility of the auditor to obtain an understanding of the
control system of the company.

Inherent Limitations may hinder the conclusive assurance for the internal control mechanisms. Inherent
limitation includes;

 Cost-benefit analysis such as internal control high set up cost.

 Internal control is mainly addressed routine transactions and cannot do the same for the non-
routine transaction.
 Human errors such as carelessness, ignorance, and misunderstanding.
 Internal control bypass through the collusion of management or employee
 Changes in condition and environment made internal control irrelevant.
b) Inherent Risk; - is the likelihood that material misstatement occurs before considering the
effectiveness of internal control. If internal control is ignored when there’s a high probability of
misstatement, auditors may conclude that the inherent risk is high. Specifically, internal control
is considered as control risk in the audit risk model. Thus, it is ignored in the setting of inherent
risk.
c) Detection Risk; - Is the substantive procedure that will not detect any misstatement that occurs.
The risk can be directly controlled by the auditors depending on the judgment based on
inherent risk and control risk.

Auditors should be able to decide which level of detection risk can reduce the audit risk to an acceptable
lower level. They can consider applying;

 Appropriate planning, direction, and supervision during the audit work

 Nature of the procedure whether through internal or external documents
 Timing of procedure estimate
 The extent of the procedure involved

Basically, in this phase of the process auditors are responsible to carry out accurate audit procedures
such as substantive tests and analytical review procedures where it provides assurance that
misstatement can be removed and detected. Thus, if the inherent risk and control risk are high, the
detection risk will be low. Therefore, it indicates that the evidence collected is high.
4. Test of Control

The audit process involves testing of the operating effectiveness of controls in detecting and preventing
material misstatements at the relevant assertion level. To gather the evidence, inspecting of clients'
documents, observing of the internal controls, re-performing of the client's control, and other procedures
are performed by the audit team.

Example of Test of controls include;

 Inquiries of the management, supervisor, and staff personnel

 Inspection of documents, reports, etc.
 Observation of the application of specific controls
 Re-performance of the application of the control by the auditors.

DESIGNING TESTS OF CONTROLS

To assess the control risk, it is required by the auditor to consider the design of controls purposely to
evaluate whether the team should be effective in meeting transactions- relating to the objectives of the
audit. Furthermore, per ISA 330, ‘’ The Auditors Procedures in Response to Assessment Risk’’ test of
controls is performed when the auditor’s risk assessment includes an expectation of the operating
effectiveness of controls. Based on the auditor’s knowledge of the client's internal control, characteristics
are identified to indicate the performance of the control, as well as possible deviation conditions that
indicate departures from an adequate performance. Also, the absence or presence of attributes can be
tested by the auditor.

Designing the Tests of Controls include;

1. Nature of Tests
 The auditor has the following choices;
a. Inquiring; - It is designed to determine;
 the understanding of employee’s own duties
 the employee’s performance of their duties
 the disposition of deviation. Incorrect or unsatisfactory responses from the employee
trigger an improper application of control.
b. Observing; - Also provides similar evidence by observing the employee’s performance.
c. Inspecting; - When there is a lead to a trail of transactions performed in the form of
signatures and business validation stamps it calls for the auditing team to an inspection
of documents since the control was performed.
d. Task Re-performing; - When the auditing team re-performs a control it provides the best
evidence and its effectiveness. Selecting a dependable procedure that will provide a
shred of reliable evidence is done by the auditing team to indicate the effectiveness of
the control policy. Also, no one test of the controls is always applicable or equally
effective in providing evidence.
2. Timing of Tests
 The timing of the test of controls refers to when they are performed and the part accounting
period to which they can be related. During the interim week, an additional test of control is
performed. Therefore, these tests only provide evidence of the effectiveness of controls from the
beginning of the year to the date of tests.
3. The extent of tests
To provide more evidence of the operating effectiveness of a control policy there should be more
extensive test controls carried out. Also, for a low assessed level of control risk rather than a
moderate level of control risk more extensive testing is recommended. The intended use of
evidence about the effectiveness of the prior audits may affect the extent of additional testing.
Moreover, before consulting the prior audits evidence, the auditor should make certain whether
there have been any significant changes in the design or operation of the control policies and
procedures since the prior tests.
 The auditor shall also obtain evidence as to;
 How the controls were used at appropriate times during the period under audit
 The consistency with which they were applied; and
 By whom/by what means they were applied

The relationship between Test of Controls and Assessing Control Risk

During the fieldwork, the planned test of control is performed basically to provide evidence of the
consistent application of a type of control policy or procedure throughout the entire year under audit,
where it is considered to be the relationship between the test of controls and the assessing of control
risk. They are not usually performed under the primarily substantive approach. However, with such tests
they are performed when there is a favorable result from a concurrent test of controls then the auditor
may decide to switch from the primarily substantive to a lower assessed level of control risk approach.
This is sometimes called an additional tests of control. Only perform when auditors’ see’s that there is a
possibility that the evidence will be lower than the initial assessment of control risk. Therefore, these
tests are done as part of an initial lower assessed level of control risk strategy for the specific claim and
also, perform to support the initial planned assessed level of control risk low or moderate and the
conforming planned level of the substantive test.

5. Substantive Procedure
A process or test that is performed by auditors to create conclusive evidence regarding the
completeness, existence, disclosures, rights, or valuation of assets or accounts on the financial
statements is called a substantive procedure. With the requirements of ISA 330 for each material class of
transactions, balance or disclosure substantive tests must be performed. It includes testing of specific
classes of transactions, account balances, and/ or substantive analytical procedures. Also, performing the
substantive procedure will help respond to significant risks. If we choose to do only substantive
procedures on key risks, it is recommended that auditors must include tests of details. Test of details
include:
 Inquiry and confirmation
 Inspection
 Observation
 Re-calculation and re-performance

Auditors must also consider whether external confirmation procedures are to be performed as audit
procedures. Mainly these will apply in responding to risks involving;
 Bank Balances
 Accounts Receivable
 Inventories from third parties
 Amounts due to lenders/ Accounts payable

In some circumstances, auditors may choose to do substantive procedures at an interim date. However,
the risk of missing material misstatement at the period end will increase, and also the longer the period
between interim and final audits will determine a higher risk occurrence. It is required by the ISA that if
misstatements are detected at an interim date, auditors must change their related assessment of risk
and their planned substantive procedures covering the remaining period. This may include extending or
repeating procedures at the period end.

It is required that auditors shall also;

 Perform audit procedures to evaluate the overall presentation of the financial statements and
other related disclosures is per the applicable financial reporting framework (International
Financial Reporting Standards)
 Evaluate the audit procedures performed and the audit evidence obtained and decide whether
the assessment of the risks remain applicable.
 And lastly, it summarized whether the sufficient appropriate evidence has been obtained based
on judgment. Factors such as understanding of the entity and its environment may influence the
judgment of the auditors.

Example of Substantive Procedure.

Completeness is one of the assertions auditor’s tests. Given the scenario; a

company claim to have K100,000 in the bank, the auditors want to prove
evidence that there is actual K100,000 in the bank. Therefore, to perform this
procedure, firstly, the auditor looks at the amount of cash the company reports
on the balance sheet. Secondly, they search through the cash ledger to identify
and locate the cash. For the company, the cash ledger may show K10,000 is
kept within the business for petty cash, and customer receipt is accumulated to
have K40,000 kept in BSP Bank in a checking account, and the other half is kept
in ANZ Bank in a savings account. Therefore, the final step is for the auditor to
count the petty cash and then communicate with the bank to get the account
statements for the date of the financial reports. If the bank statements from
the bank indicate a similar amount as the cash ledger, then the auditor can
conclude that the cash account is correct. The copies of the bank statements,
cash ledger, the financial statements, and the cash account sheet are saved as
evidence of their conclusion.

Generally, whenever an auditor performs a procedure to obtain documentation purposely to support a

conclusion they’ve made, they are conducting a substantive procedure.

6. Opinion Formulation
This stage is one of the fundamental concepts in auditing where auditors are paid to give their opinion
based on the examinations procedure carried out. A statement by the auditor expressing its opinion on
the client’s financial statements as the result of its examination is called an audit opinion. For business
stakeholders, an audit opinion is a very important information needed to make appropriate decision
making, also helps them to know whether or not the information presented in the financial statement is
correct and reliable. Furthermore, the audit opinion indirectly informs the users, the integrity level of
senior management also with the directors of the entity.
Unmodified and Modified Opinion
 Unmodified Opinion
When financial statements are prepared in all material respect and compliance with accounting
standards and other applicable financial reporting frameworks the auditor issue an unmodified opinion.
Service providers use ISA 700 to form unmodified audit opinion. Auditors issue this opinion after
acquiring sufficient and reliable audit evidence from the client’s financial statements after conducting
audit procedures. A modified opinion indicates that the audited financial statement is assumed to be
clean from misstatement. It can also be referred to as an unqualified opinion.
 Modified Opinion
In this stage, auditors use ISA 705 as guidance to issue a modified opinion. When financial statements are
not prepared in compliance with the standard and other reporting frameworks then modified opinion can
be issued.
According to ISA 705, the auditor shall modify the opinion in the auditor’s report when;
 The auditor concludes that based on the audit evidence obtained, the financial statements as
a whole are not free from material misstatement.
 The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement.

With a modified opinion, there are three types of modification. The nature and severity of the matter
under consideration determine the type of modification to be issued.

 Types of Modified opinion are;

a) The qualified opinion; - Advisory notice from the service provider indicating the incorrect
procedure of financial statement that preparations are done not in compliance with the GAAP
and audit scope limitation. A qualified opinion is prepared in the form of a letter that
accompanies the client's financial statement. When issuing of qualified opinion, it shows that
the business should improve its financial accounting methods. Auditors issue qualified opinion
when;
o Obtaining sufficient evidence, the auditor determined the misstatement, individually
or in the total, are material, but not pervasive, to the financial statement.
o Not proper evidence is collected to base their opinion, but if financial statements are
free of misstatements then the possible effect would be not pervasive. According to
ISA, pervasive is defined as, a term in the context of misstatements, to describe the
effects financial statements of misstatements.

Misstatements become pervasive when any of the following applies;

o Not limited to specific accounts

o Representing a substantial proportion of the financial statement, when it is confined.
o Disclosures are fundamental to users’ understanding of the financial statements.
A qualified opinion is less serious than adverse opinion and disclaimer opinion.

b) The adverse opinion; - When gross misstatement and, possible fraud activities identified when
preparing the company’s financial records will result in auditors issuing adverse opinions. Also,
the adverse opinion indicates that the client’s records are not prepared following GAAP.
Financial statements are not presented fairly the financial position, results of the operations,
and also the cash flow of client in conformity with the GAAP. Therefore, financial institutions or
investors can easily reject financial statements with the adverse opinion, because errors occur
may be pervasive to the financial statement.
c) The disclaimer of opinion; - When auditors are unable to express a final opinion they issue a
disclaimer. A disclaimer opinion is release due to a lack of properly maintained financial records
and support services from the clients’ management. The auditor has no opinion when an auditor
is unable to form an opinion as to the fairness of the financial statement they release a
disclaimer opinion. In this case, the auditor concludes that if there are undetected
misstatements in the financial statement the effect will be pervasive.

Form and Content Auditors Report

It is required by ISA 700, to include a paragraph in the auditor’s report to describe the matter rising to
the modification, it is labeled Basis of Qualified/Adverse/ Disclaimer and should be before the auditor’s
opinion. Material misstatement of an entity’s financial statement that relates to narrative disclosures or
specific amounts the auditor shall;

 Include in the modification basis paragraph and explain how the disclosures are misstated. (for
narrative disclosures)
 Include in the modification basis and described the description and the quantification of the
financial effects of the misstatement unless it is impracticable. The audit should state the basis
for modification if it is not practicable.

Opinion Paragraph is the part in the report where the auditor modifies the audit opinion. It should be
labeled according to the type of opinion to be presented.

When expressing a qualified opinion in the result of the material misstatements in the financial
statements, it should be stated as, in the auditor’s opinion, except for the effects for the matter(s)
describes in the Basis for Qualified Opinion paragraph;

 The financial statements present fairly, in all material aspects (or giving a true and fair value) per
the applicable financial reporting framework when reporting under a fair presentation
framework; or
 The financial statements have been prepared, in all material aspects, following the applicable
financial reporting framework when reporting per a compliance framework.

When expressing an adverse opinion, it should be stated as, ‘because of the significance of the matter
described in the Basis for adverse opinion paragraph;

 Financial statement does not present fairly (or give a true and fair value) per the applicable
financial reporting framework when reporting following a fair presentation framework; or
 The financial statements have not been prepared, in all material respects, per the applicable
financial reporting framework when reporting under a compliance framework.

Disclaiming an opinion is due to insufficient appropriate audit evidence. Therefore, when disclaiming an
opinion, the auditor should indicate that;

 Due to significant matters per the basis of Disclaimer of Opinion paragraph, the auditor has not
been able to fully obtain sufficient appropriate audit evidence to provide a basis for an audit
opinion, and accordingly,
 No expression of auditor’s opinion on the financial statements

Example of the type of Unmodified and Modified opinion;

Unmodified Opinion;

The audited financial statement of Raskol Company Ltd. comprises of the financial statement
position as at 31st December 2019, also with the comprehensive income, statement of changes
in equity and cash flow statement for the year ended, and corresponding notes to the financial
statements, including an overall summary of significant accounting policies and the director’s
declaration.

In our opinion, based on the financial report of Raskol Company Ltd. as per the standard, the
financial statement provided is in;

 A true and fair view of the Raskol Company ltd. financial position as at 31 st December
2019 and of its financial performance for the year ended; and
 In compliance with the standard other reporting frameworks.

Qualified Opinion

Given the Basis for Qualified Opinion;

When auditing the financial statement, we were unable to obtain relevant to support the
company’s investment in a foreign affiliate stated at K150,000, also its equity earnings of that
affiliate of K21,000, which is being included in the net income, as described in the Note 7 that
corresponds to the financial statements; nor we were able to satisfy our ourselves as to the
carrying value of the investment in the foreign affiliate or the equity in the earnings by the other
auditing procedures.

Qualified opinion;

In our opinion, except for the possible effects of the matters described in the Basis for the
Qualified paragraph, the financial statement referred to above present fairly, in all material
respects, the financial position of NEWMAN Company as of December 31 st, 2019, and the results
of its operations and its cash flow for the year ended in conformity with the GAAP.

Adverse Opinion

The basis for the Disclaimer of Opinion

When auditing the financial report of the Zero Company ltd. including its subsidiaries, which
comprises of;

 the consolidated statement of its position financially as at December 2019

 the comprehensive income of the consolidated statements
 the consolidated statements of changes in changes of equity, and
 its statement of cash flows for the year ended, including the corresponding notes
comprising a summary of significant accounting policies, and the director’s declaration.

Adverse Opinion.

In our opinion, because of the significance of the matter discussed in the Basis for Adverse
Opinion paragraph, the financial report of the group is not following the standards and the
reporting framework regulating the procedure of reporting the financial statements. However, it
has stated a true and fair view of the company’s financial position as at the year ended, also its
financial performance for the year then ended.

Disclaimer Opinion

The basis for the Disclaimer of Opinion

We were unable to obtain relevant information to support company’s investment in a foreign

affiliate stated at K150,000, also its equity earnings of that affiliate of K21,000, which is being
included in the net income, as described in Note 7 that corresponds to the financial statements;
nor we were able to satisfy ourselves as to the carrying value of the investment in the affiliate or
the equity in the earnings by the other auditing procedures.

Qualified Opinion

In our opinion, because of the significance of the matter described in the Basis for Disclaimer of
Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion. Hence, we do not express an opinion on these financial
statements.

7. Audit Completion of Files

When reviewing the evidence obtained during the audit process, the adjusted version of the company’s
financial statements with the auditor’s opinion objective, it is referred to as the Completion stage of
Audit. This final stage of the audit is of crucial importance. It is the stage where auditors align their
gathered information following the International Standard on Auditing (ISA) to complete the final
auditing procedure. Reviewing should be done according to the ISA. The sub-stages are identified as
follows

Audit Files and Evaluation of Misstatements Review.

It is by the requirement under the Quality Control for an Audit of Financial Statements, ISA 220 that all
audits should be subject to review, it serves as basic quality control and to ensure that appropriate audit
evidence has been obtained according to the transactions and balances in the financial statements.
When performing an audit review, if insufficient or contradictory evidence is obtained the reviewer
should propose for further audit procedures. As per the Audit Documentation, ISA 230, it is required that
documentation should include the review process, also who reviewed the audit report, and the date and
extent of such review.

When conducting an audit file review, it is relevant to evaluate and identify misstatements, as per ISA
450. Following the ISA requirements, the main objective of the auditor is to evaluate both the effect of
the identified misstatements on the audit, and if any uncorrected misstatement identifies on the
financial statements its effect should be evaluated accordingly. Furthermore, all other misstatements
identified should be accumulated during the audit. A further audit should be performed in accordance
with an identified misstatement. For example, to determine if further misstatement exists and as per
the requirement, all misstatement identified should be communicated to the client’s management on a
timely basis, also with the request to revise those identified misstatements.

Usually, the auditor will present an audit error schedule. The audit error schedule is a list of
misstatements identified by the auditor when conducting the audit. An audit error schedule will quantify
the amount of the misstatement and the proposed necessary adjustments to the financial statements.
The proposed adjustment can be in the form of an amendment or a journal entry that corresponds to
the financial statement or correction of a disclosure note. The auditor will confirm if the management
alters changes in the financial statements are done correctly.

When misstatements are not corrected by the management, it will be the auditor’s duty to reassess the
materiality level so that it remains appropriate. Then the auditor will determine if the uncorrected
misstatements are aggregate or material individual. Those in governance must be made aware of the
uncorrected misstatements, and the suggestion of the auditor’s report must also be communicated.
Reasons for not attempting to make corrections on the financial statements must be made clear to the
auditor.

It is also required that the management should provide written representation stating whether the
effects of the uncorrected misstatements are; immaterial both aggregate or individually to the financial
statements.

Final Analytical procedures

As stated earlier, the preparation of the clients’ final version of the financial statements, the adjustment
of the misstatement on to the financial statement should be done according to the auditor’s suggestion
and should be reviewed according to the required standard (ISA 520, Analytical Procedures). As per the
requirement, its objective near the end of the audit is for the auditor to design and perform procedures
to assist the overall conclusion to determine whether the financial statements are consistent with the
auditor’s understanding of the client’s entity.

The analytical procedure performed is no different from those performed at the planning stage, which
includes the executing of ratio analysis, in comparison with the prior period financial statements to
confirm that trends are expected, purposely to highlight unusual transactions that may result in possible
risk misstatement. The aim is to have sufficient audit evidence to explain the issues highlighted by the
analytical procedure, which will determine the overall reasonableness of the financial statements.
The importance of performing the analytical procedure at the end of the audit is to reveal unrecognized
risk of material misstatement and if any, then the auditor will have to revise the assess risk of
misstatement and modify the planned audit procedures accordingly. This calls for further audit
procedures corresponds to the matters that consider as high risk. Furthermore, reviewing the notes
attached to the financial statements that must be applicable to the financial reporting framework.

Subsequent events and Going Concern Procedures.

Subsequent Event

It is by the requirement that the auditor should identify sufficient evidence that occurs between
the date of financial statements and the auditor’s report that require the adjustment of, or
disclosure in, the financial statements have been identified as per the ISA 560.

With subsequent events, the auditor will be following a specific working program, which
includes reviewing the internal accounting records. It is important that the procedure of
subsequent events is performed up to date of the auditor’s report.

Going Concern Procedures

Throughout the audit process, the auditor should remain watchful for the evidence of events or
conditions that trigger suspicion on the entity’s ability to continue as a going concern. Therefore,
a conclusion is made on the going concern of the entity nearly to the end of the audit after
reviewing all evidence and the final version of the financial statements.

References

https://www.wikiaccounting.com/audit-internal-control-testing/
https://study.com/academy/lesson/substantive-procedures-in-auditing-definition-lesson-
quiz.html

https://www.wikijob.co.uk/content/industry/accountancy-professional-services/substantive-
testing

https://www.accaglobal.com/ie/en/student/exam-support-resources/fundamentals-exams-
study-resources/f8/technical-articles/audit-risk.html
https://cpahalltalk.com/audit-risk-assessment/
https://www.accountingtools.com/articles/what-are-tests-of-controls.html

https://misti.com/internal-audit-insights/five-elements-of-effective-audit-planning

https://www.accaglobal.com/vn/en/student/exam-support-resources/professional-exams-
study-resources/p7/technical-articles/completing-the-audit.html

https://www.iedunote.com/substantive-tests
https://www.iedunote.com/audit-plan

https://www.iedunote.com/completing-the-audit

https://www.accaglobal.com/vn/en/student/exam-support-resources/professional-exams-
study-resources/p7/technical-articles/completing-the-audit.html