Table D. What are the general principles on financial auditing?
Issue
The ”old” Fundamental Auditing Principles
The decision to start an audit
1.
The auditor's opinion on a set of financial statements is generally in a
Objective:
concise, standardised format which reflects the results of a wide
- Subject
range of tests and other audit work. There is often a requirement to
- Criteria
report as to the compliance of transactions with laws and regulations
- Style of
and to report on matters such as inadequate systems of control,
Conclusion
illegal acts and fraud. In some countries, constitutional or statutory
obligations may require the SAI to report specifically on the execution
of budgetary laws, reconciling budgetary estimates and authorisation
to the results set out in the financial statements. (ISSAI 400/3)
Financial Auditing Guidelines
ISSAI 1000 General Introduction to the INTOSAI Financial Audit Guidelines
The INTOSAI Financial Audit Guidelines apply to audits of financial statements as defined by
ISSAI1200 and address additional public sector audit considerations. (ISSAI 1000/15)
Furthermore, the definition of financial audit within each Supreme Audit Institutions depends
on regulations, mandate and organizational structure. (ISSAI 1000/16)
The purpose of an audit is to enhance the degree of confidence of intended users in the
financial statements. This is achieved by the expression of an opinion by the auditor on
whether the financial statements are prepared, in all material respects, in accordance with an
applicable financial reporting framework. In the case of most general purpose frameworks,
that opinion is on whether the financial statements are presented fairly, in all material
respects, or give a true and fair view in accordance with the framework. Laws or regulations
for public sector audit organizations may prescribe the use of other wordings for expressing
the opinion. An audit conducted in accordance with ISAs and relevant ethical requirements
enables the auditor to express an opinion whether the financial statements are prepared, in
all material respects, in accordance with an identified financial reporting framework. (ISSAI
1000/24)
ISSAI 1200 Overall Objectives
ISAs are written in the context of an audit of financial statements by an auditor. They are to
be adapted as necessary in the circumstances when applied to audits of other historical
financial information. ISAs do not address the responsibilities of the auditor that may exist in
legislation, regulation or otherwise in connection with, for example, the offering of securities
to the public. Such responsibilities may differ from those established in the ISAs.[…] (ISSAI
1200/2)
The purpose of an audit is to enhance the degree of confidence of intended users in the
financial statements. This is achieved by the expression of an opinion by the auditor on
whether the financial statements are prepared, in all material respects, in accordance with an
applicable financial reporting framework. In the case of most general purpose frameworks,
that opinion is on whether the financial statements are presented fairly, in all material
respects, or give a true and fair view in accordance with the framework. An audit conducted
in accordance with ISAs and relevant ethical requirements enables the auditor to form that
opinion. (Ref: Para. A1) (ISSAI 1200/3)
The financial statements subject to audit are those of the entity, prepared by management of
the entity with oversight from those charged with governance. […](ISSAI 1200/4)
As the basis for the auditor’s opinion, ISAs require the auditor to obtain reasonable
assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error. Reasonable assurance is a high level of
assurance. It is obtained when the auditor has obtained sufficient appropriate audit evidence
to reduce audit risk (that is, the risk that the auditor expresses an inappropriate opinion when
the financial statements are materially misstated) to an acceptably low level. However,
reasonable assurance is not an absolute level of assurance, because there are inherent
limitations of an audit which result in most of the audit evidence on which the auditor draws
conclusions and bases the auditor’s opinion being persuasive rather than conclusive. (Ref:
Para. A28-A52) (ISSAI 1200/5)
ISSAI 1220 Quality Control
The objective of the auditor is to implement quality control procedures at the engagement
level that provide the auditor with reasonable assurance that:
(a) The audit complies with professional standards and applicable legal and regulatory
requirements; and
(b) The auditor’s report issued is appropriate in the circumstances. (ISSAI 1220/6)
2.
Quality Control
3.
Audit
documentation
Information about an audited entity acquired in the course of the
auditor's work must not be used for purposes outside the scope of an
audit and the formation of an opinion or in reporting in accordance
with the auditor's responsibilities. It is essential that the SAI maintain
confidentiality regarding audit matters and information arising from its
Other sources
Suggested “high level” principle
The GAO Yellow book (2007):
1.22 Financial audits provide an independent
assessment of and reasonable assurance
about whether an entity’s reported financial
condition, results, and use of resources are
presented fairly in accordance with
recognized criteria. Reporting on financial
audits performed in accordance with GAGAS
also includes reports on internal control,
compliance with laws and regulations, and
provisions of contracts and grant agreements
as they relate to financial transactions,
systems, and processes. Financial audits
performed under GAGAS include financial
statement audits and other related financial
audits:
a. Financial statement audits: The primary
purpose of a financial statement audit is to
provide reasonable assurance through an
opinion (or disclaim an opinion) about
whether an entity’s financial statements are
presented fairly in all material respects in
conformity with generally accepted
accounting principles (GAAP),8 or with a
comprehensive basis of accounting other
than GAAP.
b. Other types of financial audits: Other
types of financial audits under GAGAS
provide for different levels of assurance and
entail various scopes of work, including: (1)
providing special reports, such as for
specified elements, accounts, or items of a
financial statement; (2) reviewing interim
financial information; (3) issuing letters for
underwriters and certain other requesting
parties; (4) reporting on the controls over
processing of transactions by service
organizations; and (5) auditing compliance
with regulations relating to federal award
expenditures and other governmental
financial assistance in conjunction with or as
a by-product of a financial statement audit.
The engagement partner shall take responsibility for the overall quality on each audit
engagement to which that partner is assigned. (Ref: Para. A3) (ISSAI 1220/8)
ISSAI 1230 Audit documentation
Audit documentation that meets the requirements of this ISA and the specific documentation
requirements of other relevant ISAs provides:
(a) Evidence of the auditor’s basis for a conclusion about the achievement of the overall
objectives of the auditor; and
1
audit task. However, the SAI must be entitled to report offences
against the law to proper prosecuting authorities. (ISSAI 100/2.46)
(b) Evidence that the audit was planned and performed in accordance with ISAs and
applicable legal and regulatory requirements. (ISSAI 1230/2)
A fundamental difference between the private and public sector is that there may be specific
legislative requirements in the public sector related to confidentiality on the one hand, and
access by third parties on the other hand. There is an ongoing need in the public sector to
balance confidentiality with the need for transparency and accountability.
(ISSAI 1230/P7)
It is not unusual in the public sector to have to respond to requests from outside parties to
obtain access to audit documentation. This can be especially sensitive when the outside
party attempts to obtain information indirectly from the audit organization that it is unable to
obtain directly from the audited entity.
(ISSAI 1230/P11)
4.
Fraud
Performance and exercise of technical skill should be of a quality
appropriate to the complexities of a particular audit. Auditors need to
be alert for situations, control weaknesses, inadequacies in record
keeping, errors and unusual transactions or results which could be
indicative of fraud, improper or unlawful expenditure, unauthorised
operations, waste, inefficiency or lack of probity. (ISSAI 200/2.41)
In addition, regularity audits often require that reports are made
where weaknesses exist in systems of financial control or accounting
(as distinct from performance audit aspects). This may occur not only
where weaknesses affect the audited entity's own procedures but
also where they relate to its control over the activities of others. The
auditor should also report on significant irregularities, whether
perceived or potential, on inconsistency of application of regulations
or on fraud and corrupt practices. (ISSAI 400/17)
As a matter of principle, when the audited entity has a statutory obligation to gather and
retain certain information, requests from outside parties for such information are normally
referred to the audited entity.
(ISSAI 1230/P12)
ISSAI 1240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial
Statements
An auditor conducting an audit in accordance with ISAs is responsible for obtaining
reasonable assurance that the financial statements taken as a whole are free from material
misstatement, whether caused by fraud or error. Owing to the inherent limitations of an audit,
there is an unavoidable risk that some material misstatements of the financial statements
may not be detected, even though the audit is properly planned and performed in accordance
with the ISAs. (Cf. also ISSAI 1250). (ISSAI 1240/5)
The objectives of the auditor are:
(a) To identify and assess the risks of material misstatement of the financial statements due
to fraud;
(b) To obtain sufficient appropriate audit evidence regarding the assessed risks of material
misstatement due to fraud, through designing and implementing appropriate responses; and
(c) To respond appropriately to fraud or suspected fraud identified during the audit. (ISSAI
1240/10)
When performing risk assessment procedures and related activities to obtain an
understanding of the entity and its environment, including the entity’s internal control,
required by ISA 315,6 the auditor shall perform the procedures in paragraphs 17-24 to obtain
information for use in identifying the risks of material misstatement due to fraud. (ISSAI
1240/16)
In accordance with ISA 315, the auditor shall identify and assess the risks of material
misstatement due to fraud at the financial statement level, and at the assertion level for
classes of transactions, account balances and disclosures. (ISSAI 1240/25)
[…] there may be general public expectations for public sector auditors to report any noncompliance with authorities detected during the audit or to report on effectiveness of internal
control. These additional responsibilities and the related fraud risks need to be considered by
the public sector auditor when planning and performing the audit.
(ISSAI 1240/P4)
Three conditions are normally present when fraud occurs. These conditions are often present
in various ways in the public sector. These include:

Incentive or pressure […]

Opportunity […]; and

Rationalization or attitude […]
(ISSAI 1240/P5)
In the public sector, threats to maintaining an attitude of professional skepticism throughout
the audit, as described in paragraphs 12 to 14 of the ISA, may exist and include:

The nature of personal or professional relationships as a result of the political
process/environment;

The public sector audit organization’s exclusive mandate, resulting in the lack of
audit competitors; and

In some environments, the lack of requirements to rotate auditors regularly.
Therefore public sector auditors take appropriate action to reduce such threats. Such actions
may include introducing safeguards as addressed in ISSAI 1220.
(ISSAI 1240/P8)
2
5.
Law
[…] In conducting regularity (financial) audits, a test should be made
of compliance with applicable laws and regulations. The auditor
should design audit steps and procedures to provide reasonable
assurance of detecting errors, irregularities, and illegal acts that
could have a direct and material effect on the financial statement
amounts or the results of regularity audits. The auditor also should be
aware of the possibility of illegal acts that could have an indirect and
material effect on the financial statements or results of regularity
audits. […] The regularity audit is an essential aspect of government
auditing. One important objective which this type of audit assigns to
the SAI is to make sure, by all the means put at its disposal, that the
State budget and accounts are complete and valid. This will provide
Parliament and other users of the audit report with assurance about
the size and development of the financial obligations of the State. To
achieve this objective the SAI will examine the accounts and financial
statements of the administration with a view to assuring that all
operations have been correctly undertaken, completed, passed, paid
and registered. The audit procedure normally results, in the absence
of irregularity, in the granting of a "discharge" (see paragraph 0.3d).
(ISSAI 300/4.1)
Reviewing compliance with laws and regulations is especially
important when auditing government programs because decision
makers need to know if the laws and regulations are being followed,
whether they are having the desired results, and, if not, what
revisions are necessary. Additionally government organisations,
programs, services, activities, and functions are created by laws and
are subject to more specific rules and regulations. (ISSAI 300/4.2)
Examples of Additional Fraud Risk Factors in the Public Sector Environment
(ISSAI 1240/Appendix 1)
ISSAI 1250 Consideration of Laws and Regulations in an Audit of Financial Statements
The objectives of the auditor are:
(a) To obtain sufficient appropriate audit evidence regarding compliance with the provisions
of those laws and regulations generally recognized to have a direct effect on the
determination of material amounts and disclosures in the financial statements;
(b) To perform specified audit procedures to help identify instances of non-compliance with
other laws and regulations that may have a material effect on the financial statements; and
(c) To respond appropriately to non-compliance or suspected noncompliance with laws and
regulations identified during the audit. (ISSAI 1250/10)
The objectives of a financial audit in the public sector are often broader than expressing an
opinion whether the financial statements have been prepared, in all material respects, in
accordance with the applicable financial reporting framework (i.e. the scope of the ISAs) as
noted in paragraph A6 of the ISA. The audit mandate, or obligations for public sector entities,
arising from legislation, regulation, ministerial directives, government policy requirements, or
resolutions of the legislature may result in additional objectives. These additional objectives
may include audit and reporting responsibilities relating to reporting whether public sector
auditors found noncompliance with authorities including budget and accountability. However,
even where there are no such additional objectives, there may be general public expectations
in regard to public sector auditors’ reporting of non-compliance with authorities. Therefore,
public sector auditors keep such expectations in mind, and are alert to instances of noncompliance.
(ISSAI 1250/P4)
Those planning the audit need to be knowledgeable of the
compliance requirements that apply to the entity being audited.
Because the laws and regulations that may apply to a specific audit
are often numerous, the auditors need to exercise professional
judgement in determining those laws and regulations that might have
a significant impact on the audit objectives. (ISSAI 300/4.3)
The auditor also should be alert to situations or transactions that
could be indicative of illegal acts that may indirectly impact the
results of the audit. When audit steps and procedures indicate that
illegal acts have or may have occurred, the auditor needs to
determine the extent to which these acts affect the audit results.
(ISSAI 300/4.4)
In conducting audits in accordance with this standard, the auditors
should choose and perform audit steps and procedures that, in their
professional judgement, are appropriate in the circumstances. These
audit steps and procedures should be designed to obtain sufficient,
competent, and relevant evidence that will provide a reasonable
basis for their judgements and conclusions. (ISSAI 300/4.5)
Generally, management is responsible for establishing an effective
system of internal controls to ensure compliance with laws and
regulations. In designing steps and procedures to test or assess
compliance, auditors should evaluate the entity's internal controls
and assess the risk that the control structure might not prevent or
detect non-compliance. (ISSAI 300/4.6)
Without affecting the SAI's independence, the auditors should
exercise due professional care and caution in extending audit steps
and procedures relative to illegal acts so as not to interfere with
potential future investigations or legal proceedings. Due care would
include consulting appropriate legal counsel and the applicable law
enforcement organisations to determine the audit steps and
procedures to be followed. (ISSAI 300/4.7)
6.
Communication
ISSAI 1260 Communication with those Charged with Governance
The auditor shall communicate with those charged with governance the responsibilities of the
auditor in relation to the financial statement audit, including that:
3
(a) The auditor is responsible for forming and expressing an opinion on the financial
statements that have been prepared by management with the oversight of those charged
with governance; and
(b) The audit of the financial statements does not relieve management or those charged with
governance of their responsibilities. (Ref: Para. A9-A10) (ISSAI 1260/14)
The auditor shall communicate with those charged with governance an overview of the
planned scope and timing of the audit. (Ref: Para. A11-A15) (ISSAI 1260/15)
In the public sector, this requirement may be achieved by various means. For example, the
scope and timing of the audit may be defined in relevant legislation or the audit mandate, or
public sector auditors may communicate an overview of the planned scope and timing of the
audit in the engagement letter.
(ISSAI 1260/P6)
The auditor shall communicate with those charged with governance: (Ref: Para. A16)
(a) The auditor’s views about significant qualitative aspects of the entity’s accounting
practices, including accounting policies, accounting estimates and financial statement
disclosures. When applicable, the auditor shall explain to those charged with governance
why the auditor considers a significant accounting practice, that is acceptable under the
applicable financial reporting framework, not to be most appropriate to the particular
circumstances of the entity; (Ref: Para. A17)
(b) Significant difficulties, if any, encountered during the audit; (Ref: Para. A18)
(c) Unless all of those charged with governance are involved in managing the entity:
(i) Significant matters, if any, arising from the audit that were discussed, or subject to
correspondence with management; and (Ref: Para. A19)
(ii) Written representations the auditor is requesting; and
(d) Other matters, if any, arising from the audit that, in the auditor’s professional judgment,
are significant to the oversight of the financial reporting process. (Ref: Para. A20) (ISSAI
1260/16)
Public sector auditors are often the mandated auditors of the whole, or parts, of the
government and its administration. In this situation, public sector auditors may have access
to information from other entities and their audits, which might be of relevance to those
charged with governance. Examples of this might include material errors in transactions with
the audited entity which also affect other entities, or designs of relevant controls which have
provided efficiency gains in other entities. Communicating this type of information to those
charged with governance may add value to the audit when circumstances permit. However,
laws, regulations or ethical requirements may prohibit communicating this type of information.
(ISSAI 1260/P8)
ISSAI 1265 Communicating Defiences in Internal Control to Those Charged with Governance
The auditor shall determine whether, on the basis of the audit work performed, the auditor
has identified one or more deficiencies in internal control. (Ref: Para. A1-A4) (ISSAI 1265/7)
If the auditor has identified one or more deficiencies in internal control, the auditor shall
determine, on the basis of the audit work performed, whether, individually or in combination,
they constitute significant deficiencies. (Ref:Para. A5-A11) (ISSAI 1265/8)
The auditor shall communicate in writing significant deficiencies in internal control identified
during the audit to those charged with governance on a timely basis. (Ref: Para. A12-A18,
A27) (ISSAI 1265/9)
When considering the requirements in paragraph 9 of the ISA, public sector auditors consider
that identifying those charged with governance in the public sector might not be as straight
forward as it is in the private sector.
(ISSAI 1265/P5)
Planning the audit
7.
The auditor should plan the audit in a manner which ensures that an
Planning
audit of high quality is carried out in an economic, efficient and
procedures
effective way and in a timely manner (see paragraph 0.3a). The
following paragraphs explain planning as an auditing standard.
The SAI should give priority to any audit tasks which must be
undertaken by law and assess priorities for discretionary areas within
the SAI's mandate. (ISSAI 300/1.2)
ISSAI 1300 Planning an Audit of Financial Statements
The objective of the auditor is to plan the audit so that it will be performed in an effective
manner. (ISSAI 1300/4)
The auditor shall undertake the following activities at the beginning of the current audit
engagement:
(a) Performing procedures required by ISA 220 regarding the continuance of the client
relationship and the specific audit engagement;
(b) Evaluating compliance with relevant ethical requirements, including independence, in
accordance with ISA 220; and
(c) Establishing an understanding of the terms of the engagement, as required by ISA 210.3
The GAO Yellow book (2007):
4.03 The three AICPA generally accepted
standards of field work are as follows:
37 a. The auditor must adequately plan the
work and must properly supervise any
assistants.
b. The auditor must obtain a sufficient
understanding of the entity and its
4
(Ref: Para. A5-A7) (ISSAI 1300/6)
The concept of professional skepticism enhances and broadens the concept of due care
and is fundamental for planning and performance of the audit. These concepts are basic for
most professional standards and are now introduced in the INTOSAI Financial Audit
Guidelines (ISSAI 1000/23)
[… The additional objectives of public sector auditing] may include audit and reporting
responsibilities, for example, relating to reporting whether the public sector auditors found
any instances of non-compliance with authorities including budgets and accountability
frameworks and/or reporting on the effectiveness of internal control. However, even where
there are no such additional objectives, there may be general public expectations in regard to
public sector auditors’ reporting of non-compliance with authorities or reporting on
effectiveness of internal control. Therefore, public sector auditors keep such expectations in
mind, and are alert to risks that may give rise to non-compliance or risks relating to
effectiveness of internal control when planning and performing the audit.
(ISSAI 1300/P3)
environment, including its internal control, to
assess the risk of material misstatement of
the financial statements whether due to error
or fraud, and to design the nature, timing,
and extent of further audit procedures.
c. The auditor must obtain sufficient
appropriate audit evidence by performing
audit procedures to afford a reasonable
basis for an opinion regarding the financial
statements under audit.
4.04 GAGAS establish field work standards
for financial audits in addition to the
requirements contained in the AICPA
standards. Auditors should comply with these
additional standards when citing GAGAS in
their audit reports. The additional
Government Auditing Standards relate to:
a. auditor communication during planning
(see paragraphs 4.05 through 4.08);
b. previous audits and attestation
engagements (see paragraph 4.09);
c. detecting material misstatements resulting
from violations of contract provisions or grant
agreements, or from abuse (see paragraphs
4.10 through 4.13);
d. developing elements of a finding (see
paragraphs 4.14 through 4.18);
and
e. audit documentation (see paragraphs 4.19
through 4.24).
8.
Audit strategy
and audit plan
In planning an audit, the auditor should:
a. identify important aspects of the environment in which the
audited entity operates;
b. develop an understanding of the accountability
relationships;
c. consider the form, content and users of audit opinions,
conclusions or reports;
d. specify the audit objectives and the tests necessary to meet
them;
e. identify key management systems and controls and carry
out a preliminary assessment to identify both their strengths
and weaknesses;
f. determine the materiality of matters to be considered;
g. review the internal audit of the audited entity and its work
program;
h. assess the extent of reliance that might be placed on other
auditors, for example, internal audit;
i. determine the most efficient and effective audit approach;
j. provide for a review to determine whether appropriate action
has been taken on previously reported audit findings and
recommendations; and
k. provide for appropriate documentation of the audit plan and
for the proposed fieldwork.
(ISSAI 300/1.3)
The auditor shall establish an overall audit strategy that sets the scope, timing and direction
of the audit, and that guides the development of the audit plan. (ISSAI 1300/7)
The audit plan is more detailed than the overall audit strategy in that it includes the nature,
timing and extent of audit procedures to be performed by engagement team members.
Planning for these audit procedures takes place over the course of the audit as the audit plan
for the engagement develops. For example, planning of the auditor’s risk assessment
procedures occurs early in the audit process. However, planning the nature, timing and
extent of specific further audit procedures depends on the outcome of those risk assessment
procedures. In addition, the auditor may begin the execution of further audit procedures for
some classes of transactions, account balances and disclosures before planning all
remaining further audit procedures. (ISSAI 1300/A12)
The auditor shall update and change the overall audit strategy and the audit plan as
necessary during the course of the audit. (Ref: Para. A13) (ISSAI 1300/10)
The following planning steps are normally included in an audit:
a. collect information about the audited entity and its
organisation in order to assess risk and to determine
materiality;
b. define the objective and scope of the audit;
c. undertake preliminary analysis to determine the approach to
be adopted and the nature and extent of enquiries to be
made later;
5
d.
9.
Risk
assessment
highlight special problems foreseen when planning the
audit;
e. prepare a budget and a schedule for the audit;
f. identify staff requirements and a team for the audit; and
g. familiarise the audited entity about the scope, objectives
and the assessment criteria of the audit and discuss with
them as necessary. The SAI may revise the plan during the
audit when necessary.
(ISSAI 300/1.4)
The audit findings, conclusions and recommendations must be based
on evidence. Since auditors seldom have the opportunity of
considering all information about the audited entity, it is crucial that
the data collection and sampling techniques are carefully chosen.
When computer-based system data are an important part of the audit
and the data reliability is crucial to accomplishing the audit objective,
auditors need to satisfy themselves that the data are reliable and
relevant. (ISSAI 300/5.2)
The audit risk standards are fundamental in risk-based audit approach. These standards
normally refer to business risk, which ISA 315 defines as a “risk resulting from significant
conditions, events, circumstances, actions or inactions that could adversely affect an entity’s
ability to achieve its objectives and execute its strategies, or from the setting of inappropriate
objectives and strategies”. Business risk is broader than the risk of material misstatement on
financial statements. The business risk general concept applies in the context of identifying
and assessing risk in public sector audit work. In the public sector, business risk relates to
the risk that government activities, including relevant programs, program strategies, and
objectives, will not be completed or achieved. In addition, risks related to issues such as the
political climate, public interest, and program sensitivity or potential non-compliance with
legislation or proper authority are relevant in the public sector context (ISSAI 1000/29).
ISSAI 1315 Identifying and Assessing the Risks of Material Misstatement….
The objective of the auditor is to identify and assess the risks of material misstatement,
whether due to fraud or error, at the financial statement and assertion levels, through
understanding the entity and its environment, including the entity’s internal control, thereby
providing a basis for designing and implementing responses to the assessed risks of material
misstatement. (ISSAI 1315/3)
The auditor shall perform risk assessment procedures to provide a basis for the identification
and assessment of risks of material misstatement at the financial statement and assertion
levels. Risk assessment procedures by themselves, however, do not provide sufficient
appropriate audit evidence on which to base the audit opinion. (Ref: Para. A1-A5) (ISSAI
1315/5)
10.
Understanding
the entity and its
environment
The risk assessment procedures shall include the following:
(a) Inquiries of management, and of others within the entity who in the auditor’s judgment
may have information that is likely to assist in identifying risks of material misstatement due
to fraud or error. (Ref: Para. A6)
(b) Analytical procedures. (Ref: Para. A7-A10)
(c) Observation and inspection. (Ref: Para. A11) (ISSAI 1315/6)
The Entity and its Environment
The auditor shall obtain an understanding of the following:
(a) Relevant industry, regulatory, and other external factors including the applicable financial
reporting framework. (Ref: Para. A17-A22)
(b) The nature of the entity, including:
(i) its operations;
(ii) its ownership and governance structures;
(iii) the types of investments that the entity is making and plans to make, including
investments in special-purpose entities; and
(iv) the way that the entity is structured and how it is financed
to enable the auditor to understand the classes of transactions, account balances, and
disclosures to be expected in the financial statements. (Ref: Para. A23-A27)
(c) The entity’s selection and application of accounting policies, including the reasons for
changes thereto. The auditor shall evaluate whether the entity’s accounting policies are
appropriate for its business and consistent with the applicable financial reporting framework
and accounting policies used in the relevant industry. (Ref: Para. A28)
(d) The entity’s objectives and strategies, and those related business risks that may result in
risks of material misstatement. (Ref: Para. A29-A35)
(e) The measurement and review of the entity’s financial performance. (Ref: Para. A36-A41)
(ISSAI 1315/11)
Paragraph 11(e) of the ISA refers to the measurement and review of financial performance.
Public sector auditors may include non-financial information such as achievement of
outcomes (for example, number of people helped by the program) in their measurement or
6
review. Also, in the public sector there are additional external parties who may measure and
review performance. These external parties may include the legislature, other public sector
entities, and the media.
(ISSAI 1315/P13)
11.
Internal control
and control
environment
The basic auditing principles stipulate that: The existence of an
adequate system of internal control minimises the risk of errors or
irregularities (see paragraph 6g. (ISSAI 100/30)
It is the responsibility of the audited entity to develop adequate
internal control systems to protect its resources. It is not the auditor's
responsibility. It is also the obligation of the audited entity to ensure
that controls are in place and functioning to help ensure that
applicable statutes and regulations are complied with, and that
probity and propriety are observed in decision making. However, this
does not elieve the auditor from submitting proposals and
recommendations to the audited entity where controls are found to
be inadequate or missing. (ISSAI 100/31)
[…] The auditor, in determining the extent and scope of the audit,
should study and evaluate the reliability of internal control (see
paragraph 0.3c). (ISSAI 300/3.1)
The study and evaluation of internal control should be carried out
according to the type of audit undertaken. In the case of a regularity
(financial) audit, study and evaluation are made mainly on controls
that assist in safeguarding assets and resources, and assure the
accuracy and completeness of accounting records. In the case of
regularity (compliance) audit, study and evaluation are made mainly
on controls that assist management in complying with laws and
regulations. In the case of performance audit, they are made on
controls that assist in conducting the business of the audited entity in
an economic, efficient and effective manner, ensuring adherence to
management policies, and producing timely and reliable financial and
management information. (ISSAI 300/3.2)
The extent of the study and evaluation of internal control depends on
the objectives of the audit and on the degree of reliance intended.
(ISSAI 300/3.3)
In obtaining the understanding of the entity and its environment required in paragraph 11 of
the ISA, public sector auditors take into account that:
a. Decisions may be initiated outside the entity as a result of political processes. Such
decisions influence management’s activities. Examples include:

New geographic locations or closures of existing locations;

Reorganizations, including transfer of activities to other entities;

New program areas; and

Budgetary constraints or cut backs.
b. Relevant regulatory factors include specific laws and regulations to which the entity
is subject and the potential impact of non-compliance with these;
c. Other external factors, including the applicable financial reporting framework, may
influence specific reporting objectives;
d. Understanding the business operations may include knowledge of the government
activities carried out, including relevant programs;
e. Program objectives and strategies may include public policy elements and therefore
may have implications for the risk assessment;
f. Ownership of public sector entities may not have the same relevance as in the
private sector. In the public sector, focus is on those charged with governance in
their role as representatives of the citizens;
g. Governance structures are affected by the legal structure of the entity, for example
whether the entity is a ministry, department, agency or other type of entity; and
h. Issues related to management’s assumptions ongoing concern may not be relevant.
(ISSAI 1315/P12)
The auditor shall obtain an understanding of internal control relevant to the audit. Although
most controls relevant to the audit are likely to relate to financial reporting, not all controls
that relate to financial reporting are relevant to the audit. It is a matter of the auditor’s
professional judgment whether a control, individually or in combination with others, is relevant
to the audit. (Ref: Para. A42-A65) (ISSAI 1315/12)
In obtaining the understanding of internal control […], public sector auditors take the following
into account:
a. Any additional reporting responsibilities regarding internal controls;
b. Relevant controls that relate to compliance with authorities;
c. Controls related to monitoring performance against the budget;
d. Controls related to transferring budgetary funds to other entities;
e. Controls of classified data related to national security and sensitive personal data,
such as tax and health information;
f. Supervision and other controls may be performed by parties outside the entity and
relate to areas such as:

Compliance with procurement regulations;

Execution of the budget;

Other areas as defined by legislation or audit mandate;

Management’s accountability.
(ISSAI 1315/P14)
The auditor shall obtain an understanding of the control environment (ISSAI 1315/14)
The auditor shall obtain an understanding of whether the entity has a process for:
(a) Identifying business risks relevant to financial reporting objectives;
(b) Estimating the significance of the risks;
(c) Assessing the likelihood of their occurrence; and
(d) Deciding about actions to address those risks. (Ref: Para. A79) (ISSAI 1315/15)
In obtaining the understanding of the entity’s risk assessment process […], public sector
auditors take into account that such process may be set out in legislation, included in
directives, or conducted by other public sector entities.
(ISSAI 1315/P15)
Where accounting or other information systems are computerized,
the auditor should determine whether internal controls are functioning
properly to ensure the integrity, reliability and completeness of the
data. (ISSAI 300/3.4)
In addition, regularity audits often require that reports are made
7
where weaknesses exist in systems of financial control or accounting
(as distinct from performance audit aspects). This may occur not only
where weaknesses affect the audited entity's own procedures but
also where they relate to its control over the activities of others. The
auditor should also report on significant irregularities, whether
perceived or potential, on inconsistency of application of regulations
or on fraud and corrupt practices. (ISSAI 400/17)
12.
Information
systems
The auditor shall obtain an understanding of internal control relevant to the audit. Although
most controls relevant to the audit are likely to relate to financial reporting, not all controls
that relate to financial reporting are relevant to the audit. It is a matter of the auditor’s
professional judgment whether a control, individually or in combination with others, is relevant
to the audit. (Ref: Para. A42-A65) (ISSAI 1315/12)
The auditor shall obtain an understanding of the control environment (ISSAI 1315/14)
The auditor shall obtain an understanding of whether the entity has a process for:
(a) Identifying business risks relevant to financial reporting objectives;
(b) Estimating the significance of the risks;
(c) Assessing the likelihood of their occurrence; and
(d) Deciding about actions to address those risks. (Ref: Para. A79) (ISSAI 1315/15)
ISSAI 1402 Audit Considerations Relating to Entities Using Service Organisations
The objectives of the user auditor, when the user entity uses the services of a
service organization, are:
(a) To obtain an understanding of the nature and significance of the services provided by the
service organization and their effect on the user entity’s internal control relevant to the audit,
sufficient to identify and assess the risks of material misstatement; and
(b) To design and perform audit procedures responsive to those risks. (ISSAI 1402/7)
13.
Service
organisations
14.
Materiality
The basic auditing principles stipulate that: The SAI should consider
compliance with the INTOSAI auditing standards in all matters that
are defined material. Certain standards may not be applicable to
some of the work done by SAIs, including those organised as Courts
of Account, nor to the non-audit work conducted by the SAI. The SAI
should determine the applicable standards for such work to ensure
that it is of consistently high quality (see paragraph 6a). (ISSAI 100/8)
In general terms, a matter may be judged material if knowledge of it
would be likely to influence the user of the financial statements or the
performance audit report. (ISSAI 100/9)
Materiality is often considered in terms of value but the inherent
nature or characteristics of an item or group of items may also render
a matter material--for example, where the law or regulation requires it
to be disclosed separately regardless of the amount involved. (ISSAI
100/10)
In addition to materiality by value and by nature, a matter may be
material because of the context in which it occurs. For example,
considering an item in relation to:
a. the overall view given to the financial information;
b. the total of which it forms a part;
c. associated terms;
d. the corresponding amount in previous years.
(ISSAI 100/11)
Auditors should have a sound understanding of techniques and
procedures such as inspection, observation, enquiry and
confirmation, to collect audit evidence. The SAI should ensure that
the techniques employed are sufficient to reasonably detect all
quantitatively material errors and irregularities. (ISSAI 300/5.3)
The objectives for public sector auditors may be broader than those set out in paragraph 7 of
the ISA. Such broader objectives may include elements related to requirements and
expectations for public sector auditors to report on compliance with authorities, achievement
of program objectives and effectiveness of internal control. (ISSAI 1402/P6)
In a financial statement audit, a misstatement is material, individually or when aggregated
with other misstatements, when it could reasonably be expected to influence the economic
decisions users take based on the financial statements. Materiality has both quantitative and
qualitative aspects. In the public sector, materiality may not be limited to economic decisions
of users. Legislators and regulators are often the primary users of public sector financial
statements. They may use the financial statements to make not only economic decisions but
also decisions about whether to continue certain government programs or grant funding. The
qualitative aspects of materiality generally play a greater role in the public sector than in the
private sector. In the public sector, materiality levels may be determined at a lower level than
those prescribed by the ISAs due to considerations such as the sensitive nature of certain
transactions or programs, the public interest, the need for effective legislative oversight and
regulation, and the nature of the misstatement or deviation (e.g., if it is related to fraud or
corruption) (ISSAI 1000/30).
ISSAI 1320 Materiality in Planning and Performing an Audit
When establishing the overall audit strategy, the auditor shall determine materiality for the
financial statements as a whole. If, in the specific circumstances of the entity, there is one or
more particular classes of transactions, account balances or disclosures for which
misstatements of lesser amounts than materiality for the financial statements as a whole
could reasonably be expected to influence the economic decisions of users taken on the
basis of the financial statements, the auditor shall also determine the materiality level or
levels to be applied to those particular classes of transactions, account balances or
disclosures. (Ref: Para. A2-A11) (ISSAI 1320/10)
The auditor shall determine performance materiality for purposes of assessing the risks of
material misstatement and determining the nature, timing and extent of further audit
procedures. (Ref: Para. A12) (ISSAI 1320/11)
The auditor shall revise materiality for the financial statements as a whole (and, if applicable,
the materiality level or levels for particular classes of transactions, account balances or
disclosures) in the event of becoming aware of information during the audit that would have
caused the auditor to have determined a different amount (or amounts) initially. (Ref: Para.
A13) (ISSAI 1320/12)
If the auditor concludes that a lower materiality for the financial statements as a whole (and, if
applicable, materiality level or levels for particular classes of transactions, account balances
or disclosures) than that initially determined is appropriate, the auditor shall determine
8
whether it is necessary to revise performance materiality, and whether the nature, timing and
extent of the further audit procedures remain appropriate. (ISSAI 1320/13)
When determining materiality for planning purposes in the public sector both quantitative and
qualitative matters as well as the nature of items are of importance. The context in which the
matter appears may be of importance. Furthermore, the inherent nature or characteristics of
items, or groups of items, may render them material.
(ISSAI 1320/P5)
The financial statements may also represent a key element of a public sector entity’s
accountability to the public. The accountability framework may introduce other factors that
influence the determination of materiality at different levels. As a consequence, materiality is
likely to be a result of both quantitative and qualitative factors, and materiality levels for
particular classes of transactions, account balances and disclosures may therefore often be
set at a low level.
(ISSAI 1320/P7)
Where public sector auditors also provide opinions on the effectiveness of controls or
compliance with laws and regulations they consider the need to establish materiality for these
objectives in addition to materiality for the financial statements. For example, when reporting
on the effectiveness of controls, the auditor may use a benchmark based on the percentage
of transactions or monetary amounts sampled to determine materiality for evaluating control
deviations.
(ISSAI 1320/P9)
Paragraphs 12, 13 and A13 of the ISA discuss the need to revise materiality levels in the
event of becoming aware of new information during the course of the audit. Due to
governance structures and interrelationships of entities within the public sector, it is not
unusual for public sector auditors to receive new information during the course of the audit.
(ISSAI 1320/P12)
15.
Selection of
audit procedures
The concept of materiality is applied by the auditor both in planning and performing the audit,
and in evaluating the effect of identified misstatements on the audit and of uncorrected
misstatements, if any, on the financial statements. In general, misstatements, including
omissions, are considered to be material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of
the financial statements. Judgments about materiality are made in the light of surrounding
circumstances, and are affected by the auditor’s perception of the financial information needs
of users of the financial statements, and by the size or nature of a misstatement, or a
combination of both. The auditor’s opinion deals with the financial statements as a whole and
therefore the auditor is not responsible for the detection of misstatements that are not
material to the financial statements as a whole. (ISSAI 1200/6)
ISSAI 1330 The Auditor’s responses to Assessed Risks
The auditor shall design and implement overall responses to address the assessed risks of
material misstatement at the financial statement level. (Ref: Para. A1-A3) (ISSAI 1330/5)
The auditor shall design and perform further audit procedures whose nature, timing, and
extent are based on and are responsive to the assessed risks of material misstatement at the
assertion level. (Ref: Para. A4-A8) (ISSAI 1330/6)
When planning the timing of further audit procedures […], public sector auditors also take into
account that tests of compliance with laws and regulations may be carried out during the year
while tests of budget execution normally are completed at year-end.
(ISSAI 1330/P5)
The auditor shall design and perform tests of controls to obtain sufficient appropriate audit
evidence as to the operating effectiveness of relevant controls if:
(a) The auditor’s assessment of risks of material misstatement at the assertion level includes
an expectation that the controls are operating effectively (that is, the auditor intends to rely on
the operating effectiveness of controls in determining the nature, timing and extent of
substantive procedures); or
(b) Substantive procedures alone cannot provide sufficient appropriate audit evidence at the
assertion level. (Ref: Para. A20-A24) (ISSAI 1330/8)
[…] tests of controls for a public sector entity may be broader and more detailed than those
for a private sector entity. They may also be performed irrespective of the circumstances
described in paragraph 8 of the ISA. For example, public sector auditors may perform tests of
controls over travel expenditures or sensitive payments, or of controls designed to prevent or
detect fraud within the entity.
(ISSAI 1330/P7)
9
In some cases, the auditor may find it impossible to design effective substantive procedures
that by themselves provide sufficient appropriate audit evidence at the assertion level. This
may occur when an entity conducts its business using IT and no documentation of
transactions is produced or maintained, other than through the IT system. In such cases,
paragraph 8(b) requires the auditor to perform tests of relevant controls. (ISSAI 1330/A24)
Irrespective of the assessed risks of material misstatement, the auditor shall design and
perform substantive procedures for each material class of transactions, account balance, and
disclosure. (Ref: Para. A42-A47) (ISSAI 1330/18)
If the auditor has determined that an assessed risk of material misstatement at the assertion
level is a significant risk, the auditor shall perform substantive procedures that are specifically
responsive to that risk. When the approach to a significant risk consists only of substantive
procedures, those procedures shall include tests of details. (Ref: Para. A53) (ISSAI 1330/21)
If substantive procedures are performed at an interim date, the auditor shall cover the
remaining period by performing:
(a) substantive procedures, combined with tests of controls for the intervening period; or
(b) if the auditor determines that it is sufficient, further substantive procedures only,
that provide a reasonable basis for extending the audit conclusions from the interim date to
the period end. (Ref: Para. A54-A57) (ISSAI 1330/22)
The auditor shall perform audit procedures to evaluate whether the overall presentation of the
financial statements, including the related disclosures, is in accordance with the applicable
financial reporting framework. (Ref: Para. A59) (ISSAI 1330/24)
If the auditor has not obtained sufficient appropriate audit evidence as to a material financial
statement assertion, the auditor shall attempt to obtain further audit evidence. If the auditor is
unable to obtain sufficient appropriate audit evidence, the auditor shall express a qualified
opinion or disclaim an opinion on the financial statements. (ISSAI 1330/27)
[…] In evaluating what is sufficient appropriate audit evidence, public sector auditors also
take into account the need to obtain sufficient appropriate evidence to meet any additional
objectives […]
(ISSAI 1330/P10)
Performing the audit and gathering evidence
16.
Evaluation of
misstatements
ISSAI 1450 Evaluation of Misstatements Identified During the Audit
The auditor shall accumulate misstatements identified during the audit, other than those that
are clearly trivial. (Ref: Para. A2-A3) (ISSAI 1450/5)
The auditor shall determine whether the overall audit strategy and audit plan need to be
revised if:
(a) The nature of identified misstatements and the circumstances of their occurrence indicate
that other misstatements may exist that, when aggregated with misstatements accumulated
during the audit, could be material; or (Ref: Para. A4)
(b) The aggregate of misstatements accumulated during the audit approaches materiality
determined in accordance with ISA 320. (Ref: Para. A5) (ISSAI 1450/6)
If, at the auditor’s request, management has examined a class of transactions, account
balance or disclosure and corrected misstatements that were detected, the auditor shall
perform additional audit procedures to determine whether misstatements remain. (Ref: Para.
A6) (ISSAI 1450/7)
The auditor shall communicate on a timely basis all misstatements accumulated during the
audit with the appropriate level of management, unless prohibited by law or regulation. The
auditor shall request management to correct those misstatements. (Ref: Para. A7-A9) (ISSAI
1450/8)
17.
Audit evidence
The basic auditing principles stipulate that: The SAI should apply its
own judgement to the diverse situations that arise in the course of
government auditing (see paragraph 6b). (ISSAI 100/15)
Paragraph 8 of the ISA requires the auditor to communicate on a timely basis all
misstatements accumulated during the audit with the appropriate level of management.
Where public sector auditors have mandates which include the legal authority to order the
entity to correct any misstatements as well as instances of non-compliance with authorities,
they consider whether exercising this authority may impair their independence and, if so, take
appropriate action to avoid such impairment. (ISSAI 1450/P10)
ISSAI 1500 Audit Evidence
The objective of the auditor is to design and perform audit procedures in such a way as to
enable the auditor to obtain sufficient appropriate audit evidence to be able to draw
reasonable conclusions on which to base the auditor’s opinion. (ISSAI 1500/4)
10
Audit evidence plays an important part in the auditor's decision
concerning the selection of issues and areas for audit and the nature,
timing and extent of audit tests and procedures. (ISSAI 100/16)
[…] Competent, relevant and reasonable evidence should be
obtained to support the auditor's judgement and conclusions
regarding the organisation, program, activity or function under audit
(see paragraph 0.3e). […] (ISSAI 300/5.1)
The audit findings, conclusions and recommendations must be based
on evidence. Since auditors seldom have the opportunity of
considering all information about the audited entity, it is crucial that
the data collection and sampling techniques are carefully chosen.
When computer-based system data are an important part of the audit
and the data reliability is crucial to accomplishing the audit objective,
auditors need to satisfy themselves that the data are reliable and
relevant. (ISSAI 300/5.2)
Auditors should have a sound understanding of techniques and
procedures such as inspection, observation, enquiry and
confirmation, to collect audit evidence. The SAI should ensure that
the techniques employed are sufficient to reasonably detect all
quantitatively material errors and irregularities. (ISSAI 300/5.3)
The auditor shall design and perform audit procedures that are appropriate in the
circumstances for the purpose of obtaining sufficient appropriate audit evidence. (Ref: Para.
A1-A25) (ISSAI 1500/6)
When using information produced by the entity, the auditor shall evaluate whether the
information is sufficiently reliable for the auditor’s purposes, including as necessary in the
circumstances: (ISSAI 1500/9)
ISSAI 1501 Audit Evidence – Specific Considerations for Selected Items
The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the:
(a) Existence and condition of inventory;
(b) Completeness of litigation and claims involving the entity; and
(c) Presentation and disclosure of segment information in accordance with the applicable
financial reporting framework. (ISSAI 1501/3)
ISSAI 1505 External Confirmations
The objective of the auditor, when using external confirmation procedures, is to design and
perform such procedures to obtain relevant and reliable audit evidence. (ISSAI 1505/5)
In choosing approaches and procedures, consideration should be
given to the quality of evidence, i.e., the evidence should be
competent, relevant and reasonable. (ISSAI 300/5.4)
Auditors should adequately document the audit evidence in working
papers, including the basis and extent of the planning, work
performed and the findings of the audit. (ISSAI 300/5.5)
Adequate documentation is important for several reasons. It will:
a. confirm and support the auditor's opinions and reports;
b. increase the efficiency and effectiveness of the audit;
c. serve as a source of information for preparing reports or
answering any enquiries from the audited entity or from any
other party;
d. serve as evidence of the auditor's compliance with Auditing
Standards;
e. facilitate planning and supervision;
f. help the auditor's professional development;
g. help to ensure that delegated work has been satisfactorily
performed; and
h. provide evidence of work done for future reference.
(ISSAI 300/5.6)
The auditor should bear in mind that the content and arrangement of
the working papers reflect the degree of the auditor's proficiency,
experience and knowledge. Working papers should be sufficiently
complete and detailed to enable an experienced auditor having no
previous connection with the audit subsequently to ascertain from
them what work was performed to support the conclusions. (ISSAI
300/5.7)
18.
Opening
balances
19.
Analytical
procedures
Auditors should have a sound understanding of techniques and
procedures such as inspection, observation, enquiry and
confirmation, to collect audit evidence. The SAI should ensure that
the techniques employed are sufficient to reasonably detect all
quantitatively material errors and irregularities. (ISSAI 300/5.3)
[…] In regularity (financial) audit, and in other types of audit when
ISSAI 1510 Initial Audit Engagements – Opening Balances
In conducting an initial audit engagement, the objective of the auditor with respect to opening
balances is to obtain sufficient appropriate audit evidence about whether:
(a) Opening balances contain misstatements that materially affect the current period’s
financial statements; and
(b) Appropriate accounting policies reflected in the opening balances have been consistently
applied in the current period’s financial statements, or changes thereto are appropriately
accounted for and adequately presented and disclosed in accordance with the applicable
financial reporting framework. (ISSAI 1510/3)
Audit Procedures for Obtaining Audit Evidence (ISSAI 1500/A10-A25)
A10. As required by, and explained further in, ISA 315 and ISA 330, audit evidence to draw
reasonable conclusions on which to base the auditor’s opinion is obtained by performing:
(a) Risk assessment procedures; and
(b) Further audit procedures, which comprise:
(i) Tests of controls, when required by the ISAs or when the auditor has chosen to do so; and
(ii) Substantive procedures, including tests of details and substantive analytical procedures.
11
applicable, auditors should analyse the financial statements to
establish whether acceptable accounting standards for financial
reporting and disclosure are complied with. Analysis of financial
statements should be performed to such a degree that a rational
basis is obtained to express an opinion on financial statements (see
paragraph 0.3f). (ISSAI 300/6.1)
Financial statement analysis aims at ascertaining the existence of the
expected relationship within and between the various elements of the
financial statements, identifying any unexpected relationships and
any unusual trends. The auditor should therefore thoroughly analyse
the financial statements and ascertain whether:
a. financial statements are prepared in accordance with
acceptable accounting standards;
b. financial statements are presented with due consideration to
the circumstances of the audited entity;
c. sufficient disclosures are presented about various elements
of financial statements; and
d. the various elements of financial statements are properly
evaluated, measured and presented.
(ISSAI 300/6.2)
The methods and techniques of financial analysis depend to a large
degree on the nature, scope and objective of the audit, and on the
knowledge and judgement of the auditor. (ISSAI 300/6.3)
20.
Issues
concerning
valuation
Where the SAI is required to report on the execution of budgetary
laws, the audit should include:
a. for revenue accounts, ascertaining whether forecasts are
those of the initial budget, and whether the audits of taxes
and duties recorded, and imputed receipts, can be carried
out by comparison with the annual financial statements of
the audited activity;
b. for expenditure accounts, verifying credits to assist budgets,
adjustment laws and, for carryovers, the previous year's
financial statements.
(ISSAI 300/6.4)
Auditors should have a sound understanding of techniques and
procedures such as inspection, observation, enquiry and
confirmation, to collect audit evidence. The SAI should ensure that
the techniques employed are sufficient to reasonably detect all
quantitatively material errors and irregularities. (ISSAI 300/5.3)
[Procedures for obtaining audit evidence mentioned in ISSAI 1500:]

Inspection

Observation

External Confirmation

Recalculation

Reperformance

Analytical Procedures

Inquiry
ISSAI 1520 Analytical Procedures
3. The objectives of the auditor are:
(a) To obtain relevant and reliable audit evidence when using substantive analytical
procedures; and
(b) To design and perform analytical procedures near the end of the audit that assist the
auditor when forming an overall conclusion as to whether the financial statements are
consistent with the auditor’s understanding of the entity. (ISSAI 1520/3)
Analytical procedures related to program expenditure within the public sector are likely to
include comparisons with non-financial data because there is normally less comparable
finan- cial information to perform analytical procedures. Therefore, the evaluation of controls
over the reliability of non-financial data used in the analytical procedures is important within
the public sector. (ISSAI 1520/P5)
ISSAI 1530 Audit Sampling
The objective of the auditor, when using audit sampling, is to provide a reasonable basis for
the auditor to draw conclusions about the population from which the sample is selected.
(ISSAI 1530/4)
Public sector auditors are more likely than private sector auditors to consider the need to
sample non-financial information. As a result of additional public sector objectives, such as
testing compliance with authorities and reviewing non-financial information contained in
financial statements, public sector auditors consider whether sampling will be useful in testing
such non-financial information contained in financial statements. For example […] (ISSAI
1530/P6)
ISSAI 1540 Auditing Accounting Estimates
The objective of the auditor is to obtain sufficient appropriate audit evidence about whether:
(a) accounting estimates, including fair value accounting estimates, in the financial
statements, whether recognized or disclosed, are reasonable; and
(b) related disclosures in the financial statements are adequate, in the context of the
applicable financial reporting framework. (ISSAI 1540/6)
ISSAI 1550 Related Parties
Because related parties are not independent of each other, many financial reporting
frameworks establish specific accounting and disclosure requirements for related party
relationships, transactions and balances to enable users of the financial statements to
understand their nature and actual or potential effects on the financial statements. Where the
applicable financial reporting framework establishes such requirements, the auditor has a
responsibility to perform audit procedures to identify, assess and respond to the risks of
material misstatement arising from the entity’s failure to appropriately account for or disclose
related party relationships, transactions or balances in accordance with the requirements of
the framework. (ISSAI 1550/3)
Public sector entities may also be subject to specific restrictions on the nature and scope of
the transactions that they can have with related parties. The restrictions may prohibit
transactions or practices that might be permissible in related party relationships outside the
public sector. (ISSAI 1550/P4)
Public sector auditors may be required by their mandate to consider the legal framework and
regulations governing the entity and any requirements or specific limitations these may place
on the entity, those charged with governance, management and employees, for entering into
and the conduct of transactions with a related party. There may also be limitations on the
entity’s capacity to establish wholly or partly owned entities which would be deemed related
parties. (ISSAI 1550/P12)
ISSAI 1560 Subsequent Events
The auditor shall perform audit procedures designed to obtain sufficient appropriate audit
evidence that all events occurring between the date of the financial statements and the date
12
21.
Going Concern
Auditors should have a sound understanding of techniques and
procedures such as inspection, observation, enquiry and
confirmation, to collect audit evidence. The SAI should ensure that
the techniques employed are sufficient to reasonably detect all
quantitatively material errors and irregularities. (ISSAI 300/5.3)
of the auditor’s report that require adjustment of, or disclosure in, the financial statements
have been identified. The auditor is not, however, expected to perform additional audit
procedures on matters to which previously applied audit procedures have provided
satisfactory conclusions. (Ref: Para. A6) (ISSAI 1560/6)
ISSAI 1570 Going Concern
The auditor’s responsibility is to obtain sufficient appropriate audit evidence about the
appropriateness of management’s use of the going concern assumption in the preparation
and presentation of the financial statements and to conclude whether there is a material
uncertainty about the entity’s ability to continue as a going concern. This responsibility exists
even if the financial reporting framework used in the preparation of the financial statements
does not include an explicit requirement for management to make a specific assessment of
the entity’s ability to continue as a going concern. (ISSAI 1570/6)
Management’s use of the going concern assumption is also relevant to public sector entities.
For example, International Public Sector Accounting Standard (IPSAS) 1 addresses the issue
of the ability of public sector entities to continue as going concerns. Going concern risks may
arise, but are not limited to, situations where public sector entities operate on a for-profit
basis, where government support may be reduced or withdrawn, or in the case of
privatization. Events or conditions that may cast significant doubt on an entity’s ability to
continue as a going concern in the public sector may include situations where the public
sector entity lacks funding for its continued existence or when policy decisions are made that
affect the services provided by the public sector entity. (ISSAI 1570/A1)
Sovereign governments, and in particular, sovereign central governments, ordinarily do not
become legally insolvent or bankrupt because these governments have wide-ranging powers
to levy rates, fees or taxes and so are able to adjust their revenues to meet their obligations.
Nevertheless, in some cases governments may have substantial net li- abilities relative to the
size of the economy or their ability to levy rates, fees, or taxes, or may be substantially
dependent upon assistance from other governments. While not common, sovereign
governments, including sovereign central governments, can become insolvent in the sense of
not being able to meet their obligations when they become due when, for example, the
rescheduling of obligations is not possible. The inability of a government to discharge its
obligations may also be affected by the extent to which the currency issued by the
government, or on its behalf by its central bank, continues to be accepted as a medium of
exchange to discharge its financial obligations. For this reason, public sector auditors apply
the requirements and guidance in the ISA. (ISSAI 1570/P3)
Public sector auditors may have responsibilities relating to going concern other than those to
which ISA 570 is directly relevant. Public sector auditors may be required to review and
report upon the entity’s arrangements to maintain its general financial standing. (ISSAI
1570/P5)
Public sector entities may spend more in one year than they have resources to cover, such
that their income may be less than their expenditure or there is an excess of liabilities over
assets. However, it is uncommon for the operational existence of a public sector entity to
cease or its scale of operations to be subject to a forced reduction as a result of an inability to
finance its operations or of net liabilities. (ISSAI 1570/P6)
22.
Written
representations
Auditors should have a sound understanding of techniques and
procedures such as inspection, observation, enquiry and
confirmation, to collect audit evidence. The SAI should ensure that
the techniques employed are sufficient to reasonably detect all
quantitatively material errors and irregularities. (ISSAI 300/5.3)
In forming a view of the entity’s ability to continue its operations, public sector auditors’
consideration of going concern embraces two separate, but sometimes overlapping, factors:

The greater risk associated with changes in policy direction (for example,
where there is a change in government); and

The less common operational, or business, risk (for example, where an
entity has insufficient working capital to continue its operations at its
existing level).
(ISSAI 1570/P8)
ISSAI 1580 Written Representations
The objectives of the auditor are:
(a) To obtain written representations from management and, where appropriate, those
charged with governance that they believe that they have fulfilled their responsibility for the
preparation of the financial statements and for the completeness of the information provided
to the auditor;
(b) To support other audit evidence relevant to the financial statements or specific assertions
in the financial statements by means of written representations if determined necessary by
the auditor or required by other ISAs; and
(c) To respond appropriately to written representations provided by management and, where
appropriate, those charged with governance, or if management or, where appropriate, those
charged with governance do not provide the written representations requested by the auditor.
(ISSAI 1580/6)
13
23.
Using work of
other auditors
and experts
If the SAI employs external experts as consultants it must exercise
due care to assure itself of the consultants' competence and aptitude
for the particular tasks involved. This standard applies also where
outside auditors are engaged on contract with the SAI. In addition
care must be taken to ensure that audit contracts include adequate
provision for the SAI to determine the planning, the audit scope, the
performing, and the reporting on the audit. (ISSAI 100/2.43)
Should the SAI, in the performance of its functions, need to seek
advice from specialists external to the SAI, the standards for exercise
of due care in such arrangements have a bearing also on the
maintenance of quality of performance. Obtaining advice from an
external expert does not relieve the SAI of responsibility for the
opinions formed or conclusions reached on the audit task. (ISSAI
100/2.44)
When the SAI uses the work of another auditor(s), it must apply
adequate procedures to provide assurance that the other auditor(s)
has exercised due care and complied with relevant auditing
standards, and may review the work of the other auditor(s) to satisfy
itself as to the quality of that work. (ISSAI 100/2.45)
Evaluating evidence and forming conclusions
24.
[…] The auditor and the SAI must possess the required competence
Opinion
(see paragraph 2.1c). (ISSAI 200/2.33)
The mandate of a SAI generally imposes a duty of forming and
reporting audit opinions, conclusions and recommendations. In some
SAIs this duty may be imposed on the head of the organisation. In
SAIs organised on a collegiate basis the duty is usually placed on the
institution itself. (ISSAI 200/2.34)
An audit opinion is normally in a standard format, relating to the
financial statements as a whole, thus avoiding the need to state at
length what lies behind it but conveying by its nature a general
understanding among readers as to its meaning. The nature of these
words will be influenced by the legal framework for the audit, but the
content of the opinion will need to indicate unambiguously whether it
is unqualified or qualified and, if the latter, whether it is qualified in
certain respects or is adverse (paragraph 14) or a disclaimer
(paragraph 15) of opinion. (ISSAI 400/9)
An unqualified opinion is given when the auditor is satisfied in all
material respects that:
a. the financial statements have been prepared using
acceptable accounting bases and policies which have been
consistently applied;
b. the statements comply with statutory requirements and
relevant regulations;
c. the view presented by the financial statements is consistent
with the auditor's knowledge of the audited entity; and
d. there is adequate disclosure of all material matters relevant
to the financial statements. (ISSAI 400/10)
In the public sector management’s responsibilities may also be broader than those
responsibilities in the private sector. When requesting written representations about
management’s responsibilities, public sector auditors take this broader premise into account.
(ISSAI 1580/P5)
ISSAI 1600 Special Considerations – Audits of Group Financial Statements
The objectives of the auditor are:
(a) To determine whether to act as the auditor of the group financial statements; and
(b) If acting as the auditor of the group financial statements:
(i) To communicate clearly with component auditors about the scope and timing of their
work on financial information related to components and their findings; and
(ii) To obtain sufficient appropriate audit evidence regarding the financial information of the
components and the consolidation process to express an opinion on whether the group
financial statements are prepared, in all material respects, in accordance with the
applicable financial reporting framework. (ISSAI 1600/8)
ISSAI 1610 Using the Work of Internal Auditors
The external auditor shall determine:
(a) Whether the work of the internal auditors is likely to be adequate for purposes of the audit;
and
(b) If so, the planned effect of the work of the internal auditors on the nature, timing or extent
of the external auditor’s procedures. (ISSAI 1610/8)
ISSAI 1620 Using the Work of an Auditor’s Expert and Management
The objectives of the auditor are:
(a) To determine whether to use the work of an auditor’s expert; and
(b) If using the work of an auditor’s expert, to determine whether that work is adequate for the
auditor’s purposes. (ISSAI 1620/5)
ISSAI 1700 Forming an Opinion and Reporting on Financial Statements
The objectives of the auditor are:
(a) To form an opinion on the financial statements based on an evaluation of the conclusions
drawn from the audit evidence obtained; and
(b) To express clearly that opinion through a written report that also describes the basis for
that opinion. (ISSAI 1700/6)
Forming an Opinion on the Financial Statements
The auditor shall form an opinion on whether the financial statements are prepared, in all
material respects, in accordance with the applicable financial reporting framework (ISSAI
1700/10)
In order to form that opinion, the auditor shall conclude as to whether the auditor has
obtained reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error. That conclusion shall take into
account:
(a) The auditor’s conclusion, in accordance with ISA 330, whether sufficient appropriate audit
evidence has been obtained;
(b) The auditor’s conclusion, in accordance with ISA 450, whether uncorrected
misstatements are material, individually or in aggregate; and
(c) The evaluations required by paragraphs 12-15. (ISSAI 1700/11)
The auditor shall evaluate whether the financial statements are prepared, in all material
respects, in accordance with the requirements of the applicable financial reporting
framework. This evaluation shall include consideration of the qualitative aspects of the
entity’s accounting practices, including indicators of possible bias in management’s
judgments. (Ref: Para. A1-A3) (ISSAI 1700/12)
In particular, the auditor shall evaluate whether, in view of the requirements of the applicable
financial reporting framework:
(a) The financial statements adequately disclose the significant accounting policies selected
and applied;
(b) The accounting policies selected and applied are consistent with the applicable financial
reporting framework and are appropriate;
(c) The accounting estimates made by management are reasonable;
(d) The information presented in the financial statements is relevant, reliable, comparable
and understandable;
(e) The financial statements provide adequate disclosures to enable the intended users to
understand the effect of material transactions and events on the information conveyed in the
financial statements; and (Ref: Para. A4)
14
(f) The terminology used in the financial statements, including the title of each financial
statement, is appropriate. (ISSAI 1700/13)
When the financial statements are prepared in accordance with a fair presentation
framework, the evaluation required by paragraphs 12-13 shall also include whether the
financial statements achieve fair presentation. The auditor’s evaluation as to whether the
financial statements achieve fair presentation shall include consideration of:
(a) The overall presentation, structure and content of the financial statements; and
(b) Whether the financial statements, including the related notes, represent the underlying
transactions and events in a manner that achieves fair presentation. (ISSAI 1700/14)
The auditor shall evaluate whether the financial statements adequately refer to or describe
the applicable financial reporting framework. (Ref: Para. A5- A10) (ISSAI 1700/15)
The auditor shall express an unmodified opinion when the auditor concludes that the financial
statements are prepared, in all material respects, in accordance with the applicable financial
reporting framework. (ISSAI 1700/16)
If the auditor:
(a) concludes that, based on the audit evidence obtained, the financial statements as a whole
are not free from material misstatement; or
(b) is unable to obtain sufficient appropriate audit evidence to conclude that the financial
statements as a whole are free from material misstatement, the auditor shall modify the
opinion in the auditor’s report in accordance with ISA 705. (ISSAI 1700/17)
If financial statements prepared in accordance with the requirements of a fair presentation
framework do not achieve fair presentation, the auditor shall discuss the matter with
management and, depending on the requirements of the applicable financial reporting
framework and how the matter is resolved, shall determine whether it is necessary to modify
the opinion in the auditor’s report in accordance with ISA 705. (Ref: Para. A11) (ISSAI
1700/18)
When the financial statements are prepared in accordance with a compliance framework, the
auditor is not required to evaluate whether the financial statements achieve fair presentation.
However, if in extremely rare circumstances the auditor concludes that such financial
statements are misleading, the auditor shall discuss the matter with management and,
depending on how it is resolved, shall determine whether, and how, to communicate it in the
auditor’s report. (Ref: Para. A12) (ISSAI 1700/19)
In the public sector, laws and regulations or the audit mandate may lead public sector
auditors to report findings in the auditor’s report according to the ISAs. Additional findings,
disclosures, conclusions, recommendations and management responses may be reported in
a separate report. Such reporting is supplementary to the auditor’s report according to the
ISAs and should therefore be made in a separate report when applying the ISA framework.
This separate report could be issued together with the auditor’s report or as prescribed by
laws or regulations. (ISSAI 1700/P5)
Depending on the standards applied, the public sector auditors may refer to relevant auditing
standards in one of the following ways:
a. In accordance with the ISAs; which means full compliance with all relevant
ISAs and if relevant, with the additional guidance set out in the INTOSAI
practice Notes to the ISAs;
b. In accordance with the INTOSAI Fundamental Auditing principles, but not
full compliance with the ISAs which are presently included as part of the
INTOSAI Financial Audit guide- lines (ISSAIs 1000-2999); or
c. In accordance with other national and relevant Auditing Standards.
(ISSAI 1700/P12)
Reporting and conclusions
25.
The auditor's opinion on a set of financial statements is generally in a
Reporting
concise, standardised format which reflects the results of a wide
range of tests and other audit work. There is often a requirement to
report as to the compliance of transactions with laws and regulations
and to report on matters such as inadequate systems of control,
illegal acts and fraud. In some countries, constitutional or statutory
obligations may require the SAI to report specifically on the execution
of budgetary laws, reconciling budgetary estimates and authorisation
to the results set out in the financial statements. (ISSAI 400/3)
In order to recognise reasonable user needs, the auditor's report in
both regularity and performance auditing may need to have regard to
Many public sector auditors have a responsibility to report all (not only non-trivial) identified
misstatements or compliance and control deviations to management or those charged with
governance. Such misstatements or deviations may also have implications in a broader
context. Based on their mandates, some Supreme Audit Institutions may also order that any
instances of noncompliance be corrected. (ISSAI 1000/31)
Greater consistency in the form of audit reports promotes credibility, as the report can be
readily identified as being prepared based on professional standards……………..In the
private sector, the audit report is generally a one-way communication addressed to the
appropriate parties, such as the shareholders or the board of directors. It identifies the audit
work performed and the standards on which the work was based. The responsibilities of the
auditor and management are set out and the auditor’s opinion is clearly stated. In certain
The GAO Yellow Book (2007):
5.03 The four AICPA generally accepted
standards of reporting are as follows:
a. The auditor must state in the auditor’s
report whether the financial statements are
presented in accordance with generally
accepted accounting principles (GAAP).
b. The auditor must identify in the auditor’s
report those circumstances in which such
15
expanded reporting periods or cycles and relevant and appropriate
disclosure requirements. (ISSAI 400/5)
The reporting standards are
a. At the end of each audit the auditor should prepare a written
opinion or report, as appropriate, setting out the findings in
an appropriate form; its content should be easy to
understand and free from vagueness or ambiguity, include
only information which is supported by competent and
relevant audit evidence, and be independent, objective, fair
and constructive.
b. It is for the SAI to which they belong to decide finally on the
action to be taken in relation to fraudulent practices or
serious irregularities discovered by the auditors.
With regard to regularity audits, the auditor should prepare a written
report, which may either be a part of the report on the financial
statements or a separate report, on the tests of compliance with
applicable laws and regulations. The report should contain a
statement of positive assurance on those items tested for compliance
and negative assurance on those items not tested. […](ISSAI 400/7)
An audit opinion is normally in a standard format, relating to the
financial statements as a whole, thus avoiding the need to state at
length what lies behind it but conveying by its nature a general
understanding among readers as to its meaning. The nature of these
words will be influenced by the legal framework for the audit, but the
content of the opinion will need to indicate unambiguously whether it
is unqualified or qualified and, if the latter, whether it is qualified in
certain respects or is adverse (paragraph 14) or a disclaimer
(paragraph 15) of opinion. (ISSAI 400/9)
An unqualified opinion is given when the auditor is satisfied in all
material respects that:
e. the financial statements have been prepared using
acceptable accounting bases and policies which have been
consistently applied;
f. the statements comply with statutory requirements and
relevant regulations;
g. the view presented by the financial statements is consistent
with the auditor's knowledge of the audited entity; and
h. there is adequate disclosure of all material matters relevant
to the financial statements. (ISSAI 400/10)
Emphasis of Matter. In certain circumstances the auditor may
consider that the reader will not obtain a proper understanding of the
financial statements unless attention is drawn to unusual or important
matters. As a general principle the auditor issuing an unqualified
opinion does not make reference to specific aspects of the financial
statements in the opinion in case this should be misconstrued as
being a qualification. In order to avoid giving that impression,
references which are meant as "emphasis of matter" are contained in
a separate paragraph from the opinion. However, the auditor should
not make use of an emphasis of matter to rectify a lack of appropriate
disclosure in the financial statements, nor as an alternative to, or a
substitute for, qualifying the opinion. (ISSAI 400/11)
An auditor may not be able to express an unqualified opinion when
any of the following circumstances exist and, in the auditor's
judgement, their effect is or may be material to the financial
statements:
a. there has been limitation on the scope of the audit;
b. the auditor considers that the statements are incomplete or
misleading or there is an unjustified departure from
acceptable accounting standards; or
c. there is uncertainty affecting the financial statements.
(ISSAI 400/12)
Qualified Opinion. Where the auditor disagrees with or is uncertain
about one or more particular items in the financial statements which
are material but not fundamental to an understanding of the
circumstances, the report may also include additional paragraphs that further elaborate on
important matters. The same structure is normally relevant to public sector audit reports
even though they tend to be longer and include a wider range of matters. In the public sector
laws, the audit mandate or common practice may lead the public sector auditor to report
findings, conclusions, recommendations and management responses. Such reporting is
supplementary to the auditor’s report on the financial statements in accordance with ISSAI
1700 (ISSAI 1000/31).
The auditor’s report shall state whether the auditor believes that the audit evidence the
auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s opinion.
(ISSAI 1700/33)
When expressing an unmodified opinion on financial statements prepared in accordance with
a compliance framework, the auditor’s opinion shall be that the financial statements are
prepared, in all material respects, in accordance with [the applicable financial reporting
framework]. (Ref: Para. A27, A29-A33) (ISSAI 1700/36)
ISSAI 1705 Modifications to the Opinion in the Independent Auditors Report
The objective of the auditor is to express clearly an appropriately modified opinion on the
financial statements that is necessary when:
(a) The auditor concludes, based on the audit evidence obtained, that the financial
statements as a whole are not free from material misstatement; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the
financial statements as a whole are free from material misstatement. (ISSAI 1705/4)
Qualified Opinion
The auditor shall express a qualified opinion when:
(a) The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to the
financial statements; or
(b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion, but the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not pervasive. (ISSAI 1705/7)
Adverse Opinion
The auditor shall express an adverse opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in the aggregate,
are both material and pervasive to the financial statements. (ISSAI 1705/8)
Disclaimer of Opinion
The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient
appropriate audit evidence on which to base the opinion, and the auditor concludes that the
possible effects on the financial statements of undetected misstatements, if any, could be
both material and pervasive. (ISSAI 1705/9)
The auditor shall disclaim an opinion when, in extremely rare circumstances involving
multiple uncertainties, the auditor concludes that, notwithstanding having obtained sufficient
appropriate audit evidence regarding each of the individual uncertainties, it is not possible to
form an opinion on the financial statements due to the potential interaction of the
uncertainties and their possible cumulative effect on the financial statements. (ISSAI
1705/10)
ISSAI 1706 Emphasis of Matter Paragraphs and other Matter(s) Paragraphs in the
Independent Auditor’s Report
The objective of the auditor, having formed an opinion on the financial statements, is to draw
users’ attention, when in the auditor’s judgment it is necessary to do so, by way of clear
additional communication in the auditor’s report, to:
(a) A matter, although appropriately presented or disclosed in the financial statements, that is
of such importance that it is fundamental to users’ understanding of the financial statements;
or
(b) As appropriate, any other matter that is relevant to users’ understanding of the audit, the
auditor’s responsibilities or the auditor’s report. (ISSAI 1706/4)
principles have not been consistently
observed in the current period in relation to
the preceding period.
c. When the auditor determines that
informative disclosures are not reasonably
adequate, the auditor must so state in the
auditor’s report.
d. The auditor must either express an
opinion regarding the financial statements,
taken as a whole, or state that an opinion
cannot be expressed, in the auditor’s report.
When the auditor cannot express an overall
opinion, the auditor should state the reasons
therefore in the auditor’s report. In all cases
where an auditor’s name is associated with
financial statements, the auditor should
clearly indicate the character of the auditor’s
work, if any, and the degree of responsibility
the auditor is taking in the auditor’s report.
GAGAS establish reporting standards for
financial audits in addition to the standards
contained in the AICPA standards. Auditors
should comply with these additional
standards when citing GAGAS in their audit
reports. The additional Government Auditing
Standards relate to
a. reporting auditors’ compliance with
GAGAS (see paragraphs 5.05 and 5.06);
b. reporting on internal control and
compliance with laws, regulations, and
provisions of contracts or grant agreements
(see paragraphs 5.07 through 5.09);
c. reporting deficiencies in internal control,
fraud, illegal acts, violations of provisions of
contracts or grant agreements, and abuse
(see paragraphs 5.10 through 5.22);
d. communicating significant matters in the
auditors’ report (see paragraphs 5.23
through 5.25);
e. reporting on the restatement of previouslyissued financial statements (see paragraphs
5.26 through 5.31);
f. reporting views of responsible officials (see
paragraphs 5.32 through 5.38);
g. reporting confidential or sensitive
information (see paragraphs 5.39 through
5.43); and
h. distributing reports (see paragraph 5.44).
Public sector auditors may also decide to include an Emphasis of matter paragraph for
matters relating to non-compliance with authorities that have been accurately accounted for
and/or disclosed in the financial statements. An example of such matter is improper
stewardship of funds. However, an Emphasis of matter paragraph related to non-compliance
may only be relevant if there is no requirement to provide a separate opinion on compliance
with authorities. (ISSAI 1706/P4)
16
statements, a qualified opinion should be given. The wording of the
opinion normally indicates a satisfactory outcome to the audit subject
to a clear and concise statement of the matters of disagreement or
uncertainty giving rise to the qualified opinion. It helps the users of
the statements if the financial effect of the uncertainty or
disagreement is quantified by the auditor although this is not always
practicable or relevant. (ISSAI 400/13)
Adverse Opinion. Where the auditor is unable to form an opinion on
the financial statements taken as a whole due to disagreement which
is so fundamental that it undermines the position presented to the
extent that an opinion which is qualified in certain respects would not
be adequate, an adverse opinion is given. The wording of such an
opinion makes clear that the financial statements are not fairly stated,
specifying clearly and concisely all the matters of disagreement.
Again, it is helpful if the financial effect on the financial statements is
quantified where relevant and practicable. (ISSAI 400/14)
ISSAI 1720 The Auditor’s Responsibilities Relating to Other Information in Documents
Containing Audited Financial Statements
The auditor shall read the other information to identify material inconsistencies, if any, with
the audited financial statements. (ISSAI 1720/6)
If, on reading the other information, the auditor identifies a material inconsistency, the auditor
shall determine whether the audited financial statements or the other information needs to be
revised. (ISSAI 1720/8)
If revision of the audited financial statements is necessary and management refuses to make
the revision, the auditor shall modify the opinion in the auditor’s report in accordance with ISA
705.2. (ISSAI 1720/9)
Disclaimer of Opinion. Where the auditor is unable to arrive at an
opinion regarding the financial statements taken as a whole due to
an uncertainty or scope restriction which is so fundamental that an
opinion which is qualified in certain respects would not be adequate,
a disclaimer is given. The wording of such a disclaimer makes clear
that an opinion cannot be given, specifying clearly and concisely all
matters of uncertainty. (ISSAI 400/15)
It is customary for SAIs to provide a detailed report amplifying the
opinion in circumstances in which it has been unable to give an
unqualified opinion. (ISSAI 400/16)
In addition, regularity audits often require that reports are made
where weaknesses exist in systems of financial control or accounting
(as distinct from performance audit aspects). This may occur not only
where weaknesses affect the audited entity's own procedures but
also where they relate to its control over the activities of others. The
auditor should also report on significant irregularities, whether
perceived or potential, on inconsistency of application of regulations
or on fraud and corrupt practices. (ISSAI 400/17)
SAIs which have a jurisdictional statute have the ability to take action
on certain irregularities discovered in financial statements. They may
be authorized to reconcile the accounts prepared by the accountants
and impose fines with regard to accountants, and in certain
circumstances can cause their suspension or dismissal. (ISSAI
400/18)
In reporting on irregularities or instances of non compliance with laws
or regulations, the auditors should be careful to place their findings in
the proper perspective. The extent of non-compliance can be related
to the number of cases examined or quantified monetarily. (ISSAI
400/19)
Reports on irregularities may be prepared irrespective of a
qualification of the auditor's opinion. By their nature they tend to
contain significant criticisms, but in order to be constructive they
should also address future remedial action by incorporating
statements by the audited entity or by the auditor, including
conclusions or recommendations.
17