4.1. "The overall objective and scope of an audit does not change in computerized information system (CIS) environment". Comment.

Objective and Scope of an audit in Computerized Information System (CIS) Environment:

• Principal Objective: The principal objective of an audit of financial statements, that Financial Statements are prepared as per Applicable Financial Reporting Framework AND ensure that it represents true & fair view.
• Scope of an Audit: The scope of an audit of financial statements is determined by the auditor from (i)Terms of the engagement, (ii) Requirements of relevant legislation and (iii) Pronouncements of the Institution.
• The overall objective and scope of an audit does not change in computerized information system (CIS) environment but use of a computer changes the processing and storage of financial information.
• CIS  environment may affect the organization and procedures employed by the entity to achieve adequate internal control.
• Accordingly, the procedures followed by the auditor in his study and evaluation of the accounting system and related internal controls and nature, timing and extent of his other audit procedures may be affected by CIS environment.
• Thus, when auditing in CIS environment, the auditor should have sufficient understanding of computer hardware, software and processing systems to plan the engagement and understand how CIS environment affects the study and evaluation of internal control and application of auditing procedures.
• The auditor should also have sufficient knowledge of CIS.
• Thus, it is clear from the above that overall objective and scope of audit does not change irrespective of fact that whether the accounting information is generated manually or through CIS.

3.1. "In cases where audit sample selection has been done on a random basis, no statistical process for selection of samples needs to be followed." Comment.

• Sampling means testing less than 100% of the items in the population for some characteristic and then drawing a conclusion about that characteristic for the entire population. 
• Traditionally, auditors use 'test check' (or judgmental sampling, non-statistical sampling) approach.
• The audit sample collection on a random basis ensure that all items in the population have an equal chance of selection, 
• for example, by use of random number tables.
• Thus, strictly speaking, in case of selection of an audit sample on the basis of random tables there is no need to follow any other statistical process for selection of sample.
• In fact, selection of an audit sample on random basis is the pre-requisite for application of statistical techniques.
• Therefore, whenever audit sample selection has been done on a random basis i.e. selection of a representative sample, no statistical process for selection of sample needs to be followed.

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2.1 What is the importance of having the accounts audited by an independent auditor?

Advantages of having the Accounts Audited by an Independent Auditor are:
(i) It safeguards the financial interest of persons not associated with the management like partners or shareholders.
(ii) It acts as a moral check on the employees from committing fraud.
(iii) It is helpful in settling tax liability, for Loan, and for Determination of purchase consideration for merger/sale.
(iv) It is also helpful in settling trade or labour disputes for higher wages/bonus.
(v) It helps in detection and minimizing wastages and losses.
(vi) It ensures maintenance of adequate books and records, statutory register etc.

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1.1. 'After the statutory audit has been completed a fraud has been detected at the office of the auditee'. What is your defence as an auditor?

Detection of fraud after completion of statutory audit :-

• As per SA 240, The primary responsibility for Prevention, Detection and Correction of fraud on Management and Those Charged With Governance.
• It is the duty of Management and TCWG place a strong emphasis on Fraud prevention which may reduce opportunities for fraud to take place.
• Such a system reduces but does not eliminate the possibility of fraud and error.
• An auditor conducting an audit in accordance with SAs is responsible for obtaining reasonable assurance that financial statements taken as a whole are free from material misstatement, whether caused by fraud or error.
• An auditor can obtain only reasonable assurance not an absolute assurance even audit is properly planned and performed in accordance with SAs due to inherent limitation of an audit, (i) Nature of Financial Reporting, (ii) Nature of Audit Procedure, (iii) Balance between Time and Cost, and other factors such as Related Parties etc.
• The risk of not detecting fraud is high rather than error because fraud is properly planned and intentional misstatement and conceal so that auditor facing difficulties to detect the fraud.
• The primary responsibility of auditor is express an opinion on the financial statement that represents true & fair view or not.
• If the auditor can prove with the help of his working paper (documentation) that he has followed adequate procedures necessary for the proper conduct of an audit, he cannot be held responsible for the same. if however, the same cannot be proved, he would be held responsible.

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SA 210, Agreeing the terms of Audit Engagement.

SA 200, Overall objective of an independent auditor and conduct of an audit in accordance with standard on auditing

SA 200, Overall objective of an independent auditor and conduct of an audit in accordance with standard on auditing

1. Overall Objective :

To obtain reasonable Assurance that 

• financial statement as a whole are free from material misstatement.
• financial statement are being prepared in accordance with applicable financial reporting framework.
• Auditor has express an opinion on the financial statement.

2. Applicable Financial Reporting Framework:-

• F.R.F. adopted by the management and TCWG.
• In preparation and presentation of financial statements that is 
• i. acceptable as per the circumstances or
• ii. required by law.

3. Financial Statement:-

• A structured representation
• of historical financial information,
• including related notes,
• intended to show entity's economics results & position
• as per applicable F.R.F.

4. Premises on which audit is conduct:-

 Premises = Basic Assumption

• That management & TCWG have following responsibilities:

1. For presentation and preparation of financial statements,
2. Implementation of I.C.
3. To provide the auditor with:

• All Information,
• Additional Information &
• Unrestricted access.

5.  Professional skepticism:- 

• state of questioning mind 
• state of being alert to condition
• Critical Assessment.
• 

6. Professional judgement:-

• Application of training, knowledge and experience in the field of accounting and auditing to take appropriate decisions.

 7. Conduct of audit in accordance with Standard on Auditing:-

• Auditor should comply with every SAs.

8. Code of ethics:-

• Integrity 
• Objectivity 
• Confidentiality 
• Professional competency 
• Professional behavior.

9. Inherent Limitations of an Audit:-

• Auditor can not obtain absolute assurance.
• This is due to inherent limitations of an audit due to which auditor obtains persuasive evidence rather than conclusive.
• 1. Nature of financial reporting
• 2. Nature of audit procedure
• 3. Balance between cost benefit and time
• 4. Other factor

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