AUDITINGOBJECTIVE AND GENERAL PRINCIPLES GOVERNINGAN AUDIT OF FINANCIAL STATEMENTS (BSA-200)Lecture # The !"#ect$%e of an audit of financial statements is to enable the auditor to e&'re(( )* !'$*$!*whetherthefinancial statementsareprepared, inall+)ter$), re('ect(, inaccordancewithan)'',$c)",e -$*)*c$), re'!rt$*. -r)+e/!r0.Re('!*($"$,$t1 -!r t2e F$*)*c$), St)te+e*t(The )u3$t!r is responsible for forming and expressing an opinion on the financial statements, theresponsibility for the preparation and presentation of the financial statements in accordance withthe applicable financial reporting framework is that of the management of the entity, with oversightfromthose chargedwithgovernance. The audit of the financial statements does not relievemanagement or those charged with governance of their responsibilities.M)*).e+e*tis responsible foridentifyingthefinancial reportingframeworkto be usedin thepreparationandpresentationof the financial statements. Management is alsoresponsible forpreparingandpresentingthefinancial statements inaccordancewiththat applicablefinancialreporting framework. This responsibility includes: Designing, implementing and maintaining internal control relevant to the preparation andpresentation of financial statements those are free from material misstatement, whether dueto fraud or error; electing and applying appropriate accounting policies; and Making accounting estimates that are reasonable in the circumstancesAu3$t R$(0 The risk that the auditor expresses an inappropriate audit opinion when the financial statements arematerially misstated is known as !audit risk.Au3$t r$(0 re-er( t2e '!(($"$,$t1 !- )* )u3$t!r t!e&'re(( )* $*)''r!'r$)te )u3$t !'$*$!* !* t2e (u"#ect +)tter4 I*2ere*t r$(0is the susceptibility of an assertion to a misstatement that could be material, eitherindividuallyor whenaggregatedwithother misstatements, assumingthat therearenorelatedcontrols.C!*tr!,r$(0istheriskthat amisstatementthatcouldoccurinanassertionandthatcouldbematerial, either individually or when aggregated with other misstatements, will not be prevented, ordetected and corrected, on a timely basis by the entity"s internal control.Detect$!* r$(0 is the risk that the auditor will not detect a misstatement that exists in an assertionthat could be material, either individually or when aggregated with other misstatements.Md. Mokhlesur Rahman Mozid, ACMATERMS OF AUDIT ENGAGEMENTS (BSA-250)De-$*$t$!*The engagement letter documents and confirms the auditor"s acceptance of the appointment, theob#ective and scope of the audit, the extent of the auditor"s responsibilities to the client and theform of any reports.Pr$*c$'), C!*te*t(Theformandcontent of audit engagement letters mayvaryfor eachclient, but theywouldgenerally include reference to: The ob#ective of the audit of financial statements; Management"s responsibility for the financial statements; The scope of the audit, including reference to applicable legislation, regulations, orpronouncements of professional bodies to which the auditor adheres; The form of any reports or other communication of results of the engagement; The fact that because of the test nature and other inherent limitations of an audit, togetherwith the inherent limitations of internal control, there is an unavoidable risk that even somematerial misstatement may remain undiscovered; $nrestricted access to whatever records, documentation and other information re%uested inconnection with the audit; and Management"s responsibility for establishing and maintaining effective internal control. The auditor may also wish to include the following in the letter: &rrangements regarding the planning and performance of the audit. 'xpectation of receiving from management written confirmation concerning representationsmade in connection with the audit. (e%uest for the client to confirm the terms of the engagement by acknowledging receipt ofthe engagement letter. Description of any other letters or reports the auditor expects to issue to the client. )asis on which fees are computed and any billing arrangementsRe)(!* -!r $((u$*. *e/ e*.).e+e*t ,etterThe auditor may decide not to send a new engagement letter each period. *owever, the followingfactors may make it appropriate to send a new letter: &ny indication that the client misunderstands the ob#ective and scope of the audit. &ny revised or special terms of the engagement. & recent change of senior management or those charged with governance. & significant change in ownership. & significant change in nature or si+e of the client"s business. ,egal or regulatory re%uirements.-here the terms of the engagement are changed, the auditor and the client should agree on the newterms. Theauditor shouldnot agreetoachangeof engagement wherethereisnoreasonable#ustification for doing so. .f the auditor is u*)",e t! ).ree to a change of the engagement and is notpermitted to continue the original engagement, the auditor should /$t23r)/ and consider whetherthereisanyobligation, eithercontractualorotherwise, toreporttootherparties, suchasthosecharged with governance or shareholders, the circumstances necessitating the withdrawal4Md. Mokhlesur Rahman Mozid, ACMA6UALIT7 CONTROL FOR AUDITS OF 8ISTORICALFINANCIAL INFORMATION (BSA-220)De-$*$t$!*E*.).e+e*t ')rt*er/ the partner or other person in the firm who is responsible for the auditengagement and its performance, and for the auditor"s report that is issued on behalf of the firm,andwho, wherere%uired, hastheappropriateauthorityfromaprofessional, legal orregulatorybody.E*.).e+e*t9u),$t1c!*tr!, re%$e//aprocessdesignedtoprovideanob#ectiveevaluation,before the auditor"s report is issued, of the significant #udgments the engagement team made andthe conclusions they reached in formulating the auditor"s report.E*.).e+e*t9u),$t1c!*tr!, re%$e/er/apartner,otherpersoninthefirm, suitably%ualifiedexternal person, or a team made up of such individuals, with sufficient and appropriate experienceand authority to ob#ectively evaluate, before the auditor"s report is issued, the significant #udgmentsthe engagement team made and the conclusions they reached in formulating the auditor"s report.E*.).e+e*t te)+/ all personnel performing an audit engagement, including any expertscontracted by the firm in connection with that audit engagementF$r+ / a sole practitioner, partnership or corporation or other entity of professional accountants.L$(te3 e*t$t1/ an entity whose shares, stock or debt are %uoted or listed on a recogni+ed stockexchange, or are marketed under the regulations of a recogni+ed stock exchange or other e%uivalentbody.M!*$t!r$*. / a process comprising an ongoing consideration and evaluation of the firm"s systemof %ualitycontrol, includinga periodic inspectionof a selectionof completedengagements,designedtoenablethefirmtoobtainreasonableassurancethatitssystemof%ualitycontrol isoperating effectively.Net/!r0 -$r+ / an entity under common control, ownership or management with the firm or anyentitythat areasonableandinformedthirdpartyhavingknowledgeofall relevant informationwould reasonably conclude as being part of the firm nationally or internationallyP)rt*er/anyindividual withauthoritytobindthefirmwithrespect totheperformanceofaprofessional services engagement.Per(!**e, / partners and staff.St)-- / professionals, other than partners, including any experts the firm employs.uitably%ualifiedexternal person/anindividual outside the firmwiththe capabilities andcompetence to act as an engagement partnerLe)3er(2$' Re('!*($"$,$t$e( -!r 6u),$t1 !* Au3$t(The engagement partner should take responsibility for the overall %uality on each audit engagementto which that partner is assigned.Et2$c), Re9u$re+e*t(The engagement partner should consider whether members of the engagement team have compliedwith ethical re%uirements.I*3e'e*3e*ceThe engagement partner should form a conclusion on compliance with independence re%uirementsthatapplytotheaudit engagement..ndoingso,theengagement partner shouldobtain relevantMd. Mokhlesur Rahman Mozid, ACMAinformation to identify and evaluate circumstances and relationships that create threats toindependence and take appropriate action to eliminate such threats or reduce them to an acceptablelevel by applying safeguards. A(($.*+e*t !- E*.).e+e*t Te)+(The engagement partner should be satisfied that the engagement teamcollectively has theappropriate capabilities, competence and time to perform the audit engagement in accordance withprofessional standards and regulatory and legal re%uirements, and to enable an auditor"s report thatis appropriate in the circumstances to be issued.E*.).e+e*t Per-!r+)*ceThee*.).e+e*t ')rt*ershould take responsibility for the3$rect$!*: (u'er%$($!* )*3'er-!r+)*ceof the audit engagement in compliance with professional standards and regulatoryand legal re%uirements, andfor the auditor"s report that is issued to be appropriate inthecircumstances.)efore the auditor"s report is issued, the engagement partner, throughre%$e/of the auditdocumentation and discussion with the engagement teamshould be satisfied that sufficientappropriateaudit evidencehas beenobtainedtosupport theconclusions reachedandfor theauditor"s report to be issued.C!*(u,t)t$!*The engagement partner should:0 )e responsible for the engagement team undertaking appropriate consultation on difficult orcontentious matters;0 )e satisfied that members of the engagement team have undertaken appropriate consultationduring the course of the engagement, both within the engagement team and between theengagement team and others at the appropriate level within or outside the firm;0 )e satisfied that the nature and scope of, and conclusions resulting from, such consultationsare documented and agreed with the party consulted; and0 Determine that conclusions resulting from consultations have been implemented.D$--ere*ce( !- O'$*$!*-here differences of opinion arise within the engagement team, with those consulted and, whereapplicable, betweentheengagement partner andtheengagement %ualitycontrol reviewer, theengagement team should follow the firm"s policies and procedures for dealing with and resolvingdifferences of opinion.E*.).e+e*t 6u),$t1 C!*tr!, Re%$e/ 1or audits of financial statements of listed entities, the engagement partner should:0 Determine that an engagement %uality control reviewer has been appointed;0 Discuss significant matters arising during the audit engagement, including those identifiedduring the engagement %uality control review, with the engagement %uality controlreviewer; and0 2ot issue the auditor"s report until the completion of the engagement %uality control review. &n engagement %uality control review should include an ob#ective evaluation of:0 The significant #udgments made by the engagement team; and0 The conclusions reached in formulating the auditor"s report.Md. Mokhlesur Rahman Mozid, ACMA