Auditing & Assurance for CPA Intermediate Level

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Auditing and Assurance Study Notes

Course Syllabus

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 safeguards.
   • 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 audit.
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 client.
       • 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 audits.
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 audit.
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 system.
     • 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/management.
   • Outsourcing internal audit function-advantages and disadvantages.
   • Audit committee-functions, merits and demerits.
   • Internal check systems-scope, features, advantages and disadvantages
   • Information technology threats and control
   • Auditors duty on compliance with laws and regulations.
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 skepticism.
12. Audit
    • 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 12.10 Using management representations (importance, procedures adopted and matters covered).
13. Auditing in the public sector
    • 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 General.
    • Functions of audit advisory board and executive committee in Auditor General office.
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 issued.
    • 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 opinions.
    • 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 adjustments.
    • Review of compliance with accounting policies, opening balances, prior period audits by other auditors
    • Format for presentation of independent auditor’s report.
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
    • E- commerce auditing
    • Cloud documentation
    • Use of data analytics tools in audit (Anomaly detection, diagnostic analysis, predictive analysis.

Sample Reading and Reference Material

1. Kumar, R., & Sharma, V. Fundamentals of Practical Auditing. Revised Edition. New Delhi: Prentice Hall India.
2. Millichamp, A., & Taylor, J. (2018). Auditing (11th edition). Cengage Learning EMEA.
3. Johnstone-Zehms, K. M., Gramling, A. A., & Rittenberg, L. E. (2018). Auditing: A Risk-Based Approach to Conducting Quality Audits. Australia: South-Western / Cengage Learning.
4. Whittington, R., & Pany, K. (2021). Principles of Auditing & Other Assurance Services (21st edition). New York: McGraw-Hill Education.
5. Arens, A., Elder, R., Beasley, M., & Hogan, C. (2016). Auditing and Assurance Services (16th edition). Boston: Pearson.
6. KASNEB e-learning resources (link on the KASNEB website).
7. KASNEB approved study packs.