Page 20 - CA Inter Audit PARAM

CA Ravi Taori
Answer Scope of Audit in detection of Fraud: In conducting audit of financial statements objectives of auditor, in
accordance with SA 200, “Overall Objectives of the Independent auditor and the conduct of an audit in
accordance with Standards on Auditing” is to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or error, thereby
enabling the auditor to express an opinion.

An audit is not an official investigation into alleged wrongdoing. The auditor does not have any specific
legal powers of search or recording statements of witness on oath which may be necessary for carrying
out an official investigation.

Audit is distinct from investigation. Investigation is a critical examination of the accounts with a special
purpose. For example, if fraud is suspected and it is specifically called upon to check the accounts
whether fraud really exists, it takes character of investigation.

The scope of audit is general and broad whereas scope of investigation is specific and narrow.

Thus, inclusion of such a clause in the engagement letter is uncalled for and outside the scope of audit.

Timeliness of Financial Reporting and the Balance Old Course -- (M18R/N20E/M22M)
QNO
200.15 between Benefit and Cost
Bhaskar CNO SA200.040
The matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor to omit an audit
procedure for which there is no alternative or to be satisfied with audit evidence that is less than
persuasive. Explain.
Answer ➢ Timeliness of Financial Reporting and the Balance between Benefit and Cost:
The matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor to omit an
audit procedure for which there is no alternative or to be satisfied with audit evidence that is less
than persuasive. Appropriate planning assists in making sufficient time and resources available for
the conduct of the audit. Notwithstanding this, the relevance of information, and thereby its value,
tends to diminish over time, and there is a balance to be struck between the reliability of
information and its cost.

There is an expectation by users of financial statements that the auditor will form an opinion on the
financial statements within a reasonable period of time and at a reasonable cost, recognising that it
is impracticable to address all information that may exist or to pursue every matter exhaustively
on the assumption that information is in error or fraudulent until proved otherwise.
Author’s Note
Answer is also covered in 200.09

Inherent Limitations of an auditor’s ability to Old Course – (M20R/N23R/ SM20/SM21/M21E)
QNO
200.18 detect MMST in certain areas
Bhaskar CNO SA200.060
In case of certain subject matters, limitations on the auditor’s ability to detect material misstatements are

particularly significant. Explain such assertions or subject matters.
Answer ➢ In the case of certain assertions or subject matters, the potential effects of the inherent limitations on
the auditor’s ability to detect material misstatements are particularly significant. Such assertions or

subject matters include: (FiRaNG)
Fraud, particularly fraud involving senior management or collusion.
The existence and completeness of related party relationships and transactions.
The occurrence of non-compliance with laws and regulations.
Future events or conditions that may cause an entity to cease to continue a going concern.
Relevant SAs identify specific audit procedures to assist in mitigating the effect of the inherent
limitations.

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