AUDITING ASSURANCE AND PRINCIPLES (NOTES)

CHAPTER 1 FS Audit – FS, external/independent, audit of

historical information
Established Criteria Operational – performance, management audit,
o PFRS effectiveness and efficiency
o IAS Compliance – adherence, gov’e auditors
o Other authoritative and comprehensive
financial reporting framework
❖ Contractual basis to maintain independence

Users of FS
Types of Auditors
o Investors
1. External/Independent Auditors – FS Audit,
o Creditors/lenders
operational, compliance
o Suppliers (for future partnership)
2. Internal Auditors – operational, compliance
o Management (for effectivity)
3. Government Auditors - FS, operational,
o Government/Regulators (BIR, SEC)
compliance
o Customers (ability to supply in the long
term)
o Shareholders
ASSURANCE
o Employees
o BOD (committees)
examination audit review

Assertions

✓ Occurrence PRACTITIONER
✓ Accuracy
✓ Broader than the auditor (can conduct
✓ Existence
examination
✓ Rights and obligations
✓ Comply with ethical requirements
✓ Allocation and valuation
✓ Express an opinion
✓ Completeness
✓ Determination of scope (nature, timing, and
✓ Classification
extent of engagement)
✓ Accounting period
✓ Use an expert
✓ Cut off

RESPONSIBLE PARTY
AUDIT RISK – verifiable if two independent
variables with same procedures came with the ✓ Responsible for the subject matter
same conclusion (assertions)
✓ May or maybe engage by the users
INFORMATION RISK – fraud and errors. ✓ May or maybe the engaging party
Voluminous data ✓ From the same organization
✓ Maybe one of the users but not the only one
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

USERS Suitable Criteria

✓ Users of assurance report ✓ Reliability

✓ Understandability
SUBJECT MATTER – nature of the assertion for ✓ Neutrality
which the practitioner gathers sufficient ✓ Completeness
evidence ✓ Relevance (can assist you to decide)
❖ Communicate all these with the users –
SUBJECT MATTER INFORMATION – outcome of included in assurance report
the evaluation or measurement of a subject
matter against the established criteria
SUFFICIENT APPROPRIATE EVIDENCE
Subject Criteria Subject ✓ Professional ✓ Quality ✓ Competent
Matter Matter Info judgement (source,
Entries; FPos, PFRS, IAS, Financial nature)
FPer, cash other Statement ✓ Experience ✓ Reliabilit ✓ Materialit
flow authoritative y y
& ✓ Materiality ✓ Generaliz ✓ Risk
comprehensive ation
financial ✓ Cost-benefit ✓ Obtain ✓ Experience
reporting from
framework external
Entity’s Objective set Statement sources
performance by report about ✓ Quantity ✓ More
management entity’s reliable
ISO and effectiveness
COSO & efficiency Reliability
Compliance Law, rules, Statement of
regulations compliance • Internally generated is more reliable when
IC is strong and effective
Criteria • Directly obtain by the auditor – firsthand
knowledge
Formal – universally and widely accepted ex.
• Written evidence
ISO, COSO
• Original
Less Formal – not universally but widely
accepted ex. By laws
Materiality ↑ Audit evidence ↓
Established – set by an organization and used
over time

Specifically developed – for specific unit or

CHAPTER 2
subject matter ex. Performance standard,
marketing strategy 1. Technical training and proficiency – auditing
is complex and requires a solid understanding of
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

accounting principles, laws, and industry

practices
CHAPTER 3
2. Independence – ensures objectivity, not
reliable if biased Error

3. Professional care – must perform carefully M - mistake in application

and thoroughly. if not, it can miss material
A – incorrect accounting estimate
errors or fraud, which can mislead the users of
FS M – mistake in gathering and processing data

4. Planning – ensures efficient and effective

audits and ensures followed procedures Fraud

5. Internal control – strong IC reduce the risk of M – manipulation, falsification

material misstatement I – intentional misapplication of accounting
6. Evidential matter – to form credible opinion standards

7. GAAP – for assurance, accounting rules are M – misrepresentation or intentional omission of

followed transaction or event

8. Inconsistency – can affect comparability

9. Disclosure – lack of disclosure can hide risks Overriding Controls

or distort reality O – omitting, advancing & delaying recognition
10. Opinion – if FS are fairly presented, of transaction
depending for decision-making I – inappropriately adjusting assumptions

C – concealing or not disclosing the facts

Unmodified / Unqualified – fairly presented “FS
related to the documents
are fairly presented in all material respect”
A – alterations of accounting records and terms
Modified – departure/deviation
R – recording of fictitious transactions
o Qualified – material but not pervasive
o Adverse – material & pervasive E – engaging in complex transactions

ANALYTICAL PROCEDURES – comparison, ratios, Approach

plausible relationship, unusual fluctuations
J – test the appropriateness of the journal
Develop expectation → Compare the actual to entries
the expectation → Is the difference significant?
E – review accounting estimates
→ If yes, design more
B – obtain understanding about the business
→ if no, accept the reasonableness transactions
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

Rationalization
Pressure/
(for MOA)
Incentive

Fraud
o Fraud is justified to save a family member
Triangle Attitude/ o We win, lose everything, if we don’t take the
Opportunity Rationalization money

(for FFR)
Pressure
o One time thing to get us through the current
crisis and survive until things get better
Opportunity Capability
Separated Functions

Rationalization C – custody of asset

A – authorization / approval

Pressure relating to misappropriation of asset R - recording

o Personal factors (O) – overseeing

o Pressure from family and friends
o Addiction to gambling or drugs

CHAPTER 4
Pressure relating to fraudulent financial
reporting Major Audit Procedures

o Management compensation scheme Risk Assessment Procedure (RAP)

o Other financial pressures for improved
F – further audit procedures
earnings
o Personal wealth is tied to the financial E – enhance understanding of the entity and its
results or survival of the company environment
o Greed R – respond appropriately to risk of material
misstatement
Opportunity (top management should consider)
❖ Conduct RAP --- what is the findings? --- if
o Significant related party transactions not satisfied, do FAP
o Company’s industry position
o Management’s inconsistency Procedures
o Simple transactions that are made complex
o Complex or difficult to understand o Inquire
transactions o Observation
o Ineffective monitoring of management by o Inspection
the board o Confirmation
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

FAP Blank Confirmation – under +, we let 3rd party

voluntary give the information
✓ Test of control
- Observation
- Inspection (+)
- Inquiry ✓ High risk of material misstatement
- Reperformance ✓ Significant amount / material amount
- Whether IC is effective involved
- Operation effectiveness of IC
✓ IC is weak
✓ Unusual / complex transactions
✓ Substantive testing – substantiating the
✓ Dispute between management & 3rd party
account balances
- Inquiry
- Observation (-)
- Inspection ✓ Low risk of material misstatement
✓ IC is strong
TOD
ST < SAP < TOTE ✓ Long and valued relationship
TOB
✓ Large number of relatively immaterial
amount
Specific Audit Procedures ✓ When the accounting is low or few activities
Inquiry – asking information to have knowledge ex. Prepaid rent
✓ Cost and resources efficiency
Observation – watching the process
✓ Considering cost, benefit and efficiency
Inspection – records/documents, tangible assets

Analytical Procedures – study of trends, ratios, Overview of FS Audit

comparison 1. Preliminary Engagement – you don’t want to
Confirmation – directly inquiring to the 3rd drag your name to that entity whose
party management lack of integrity

Recalculation – recomputation 2. Audit Planning

Reperformance – independent execution 3. Considering Internal Control

4. Performing Substantive Tests

Types of Confirmation
5. Completing the Audit
Positive Confirmation – directly confirming to
6. Issue an Audit Report
3rd party and encouraging them to respond
whether they agree or disagree
❖ The reliance to IC, IC is strong
Negative Confirmation – asking a respond only = Nature – less extensive
when they disagree Time – interim
Extent – small sample size / less AP
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

CONTROL RISK – risk that your internal control Decision

system will not prevent, detect, and correct all
Not to accept – no further audit procedure to be
material misstatements in a timely manner
performed

To accept
Completion
1. evaluate the use of applicable financial
1. Identifying subsequent events
accounting reporting framework by the
2. Identifying litigation management
3. Wrap-up procedures 2. establish the pre-condition – sending an
4. Obtaining written representation engagement letter to the client

Accepting an Engagement General content of the engagement letter

In making this decision, the firm should o Objective and cope

consider: o Responsibility of the management
o Responsibility of the auditor
✓ Competence – don’t portray as if you have o identification of the applicable FR
the experience framework
✓ Independence – mind (you can make o reports
decision without influence), appearance
(avoidance of facts and information wherein
Responsibility of the management
the 3rd party of knowledge of you having an
engagement) 1. preparation and presentation of FS in
✓ Ability to serve the client properly – enough accordance with applicable FR framework
manpower, resources, time to do so
2. adoption and implementation of IC
✓ Integrity of management – publish articles
✓ Adequacy of accounting records – 3. detection and prevention of fraud and error
auditability 4. provide the auditor:

I – all information such as records &

documentation relevant to the prep of FS

R – any additional information that the

auditor may request

A – unrestricted access to all information

❖ if it’s explicitly imposed to law, no need of an

engagement letter
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

Furthermore, EL may be used as reference: Yes – stop performing the old engagement, stop
referring to old engagement except when new
R – presence of risk
engagement involves agreed-upon, or start
A – unrestricted access referring to new engagement

F – financial reporting framework No – continue referring to original engagement.

If prohibited, withdraw and communicate the
O – objective of the audit
reason.
R - reports

M – management’s responsibility

S – scope of audit
CHAPTER 5
design
Auditor may also wish to include:
Understanding of IC < implementation
operations
F – fees Evaluating the IC < effectiveness
R – representation letter
Overall Audit Audit
A – acknowledgement of management terms Audit Program
Strategy Plan
P – planning of audit Scope N Audit procedures
are specified
Objective ‘T Time budget (staff
Auditor’s response assignment)
Direction E Objective of audit
- if terms of the audit engagement are
per are
changed, the auditor and management shall Nature other NTE per area
agree on and record the new terms of the Timing Set of instructors
engagement in an engagement letter or to assist
other suitable letter Control & records
of audit progress

If the auditor is unable to agree and not

permitted by management: Assessed level of CR
H M L
a. Withdraw from the audit engagement where Assessed
H Lowest Lower Medium
level of
possible under applicable law or regulation; & M Lower Medium Higher
IR
L Medium Higher Highest
b. Determine whether there is any obligation,
either contractual or otherwise to report the
circumstances to other parties, such as those Set – Materiality ↓ AR ↓
charged with governance, owners or regulators
Assessed level - Materiality ↑ AR ↓

❖ Setting the level of materiality in planning

Is there responsible justification? (preliminary level – smallest aggregate
amount) and completion phase.
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)
❖ Subpoena – no need permission to client, Testing
defense to litigation
D – detect material misstatement

O – obtain corroborative audit evidence

RAP – inquiry, inspection, observation, AP
E – evaluate the reasonableness of FS
F – identify the FAP

E – enhance understanding of the entity & its

Completion / overall
environment
C – confirm the conclusion reach
R – we want to respond appropriately with
ROMMS I – identify unusual fluctuations

ANALYTICAL PROCEDURES

1. Develop expectations CHAPTER 6

P – prior years’ FS INTERNAL CONTROL
A – anticipated results (budgets or forecasts) ✓ a process
I – industry averages ✓ designed, implemented, and maintained by
TC, WG, mgmt., & other personnel
N – non-financial information (behavior)
✓ to provide reasonable assurance about the
T – typical relationship among FS achievement of the entity’s objectives
✓ with regards to reliability of ICS - financial
reporting, effectiveness and efficiency of
2. Compare the actual FS with the developed
operations and compliance with applicable
expectations
laws and regulations
Develop expectations --- Compare actual FS w/
developed expectations --- is there a difference?
❖ no matter how effective or strong the IC is,
> Yes, conduct further investigation it would only give reasonable assurance
because of inherent limitations:
> No, accept the reasonableness
C – cost-benefit consideration

O – management overriding controls (circumvent

ANALYTICAL PROCEDURES IN:
the controls)
Planning
C – collusion (those charged w/ governance &
D – determine NTE mgmt.)
I – identify areas w/ ROMMS C – changed in conditions (change ownership)
E – enhance the understanding of the entity H – human error
and its environment
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)
o detection
A – design for anticipated unusual transactions
o accept
rather than non-routine transactions
o mitigate
o sharing the risk
Objectives

F – reliability of FS G – generate revenue other for source:

O – operational A – considering fraud & error
I - identify
C – compliance M – minimize cost & expense
M – measure (measure by likelihood, if occurred,
by impact)
Components of Internal Control M - manage
C – control activities O – overseeing

R – risk assessment
MONITORING
I – information communication system
Ongoing monitoring – current monitoring
M - monitoring within the department. Ex. Bank recon,
E – control environment matching of list

Separate evaluations -internal and external

CONTROL ACTIVITIES audit, not recurring

P – physical / logical control (physical

safeguards. Password, PIN) CONTROL ENVIRONMENT

A – authorization and approval - set the tone of the environment

R – reconciliation (shipping dept., what product

Consider the IC in planning.
lumabas baka hindi na bill)
1. Obtain understanding
I – inspection / verification
2. Document the understanding (narrative, ICQ,
S – segregation of duties (CAR)
flowchart)
❖ if management wants optimum or maximum
3. Assessment of control risk
segregation use ICARE

EVALUATE CR
RISK MANAGEMENT

I – identify risk (mgmt. will identify the possible At high level Less than high level
risk)

A – assess the risk ST TOC – evaluate the

effectiveness of design
M – manage risk
and the operation
o avoidance
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

High Less than 4. Predictability of account balances

CR
level high level
1. understanding of IC ✓ ✓
2. conclusion ✓ ✓ TOB TOTE
3. basis for conclusion Cash PPE
/ assessment ✗ ✓
AR Bonds (payable,
repayment)
Inventories SHE (issuance,
Management letter – auditor --- mgmt. (audit
repurchases,
finding and recommendations) dividends)
Management representation letter – mgmt. --- AP Intangible asset
(add, disposal,
auditor
amortization)

❖ for recurring audit, every 3rd i-reevaluate and

❖ ICS = effective; IR below max / less than high
IC
– more reliance, more evidence, that ICS is
❖ TOC – design and implementations
operating effectively or as intended
❖ ST alone cannot provide sufficient audit
evidence
EVIDENCE

Underlying Corroborating
- info used to prepare - info obtained
CHAPTER 8 FS during the
performance of audit
ST ↑ DR ↓ (inversely) procedure and
obtained from
outside sources
SUBSTANTIVE ANALYTICAL PROCEDURES
= info that supports Ex. Confirmation,
RAP FAP ST mgmt’s assertion invoices from 3rd
Inquiry TOC Inquiry party, contract, bank
Observation Inquiry Observation statement, PO
Inspection Observation Inspection Ex. TB, GJ, ledgers,
AP Inspection AP invoices (sales),
Reperformance Recalculation reconciliation,
Confirmation worksheets

Factors that can make AP to be effective Generalization

1. Before using AP, consider the nature of 1. audit evidence are more reliable when obtained
assertion directly

2. Reliability of the source of data used to 2. AE are more reliable when obtained from
develop expectation external or outside sources

3. Precision of expectation 3. AE are more reliable when they are written

 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

> external vs. internal > resend / follow-up

> internally generated

CONFIRMING
AUDITOR MGMT
> direct vs. indirect PARTY
Request the Sends the Responds to
> written vs. oral
mgmt. to confirmation the external
> original prepare & sign req. confirmation
the
confirmation
Other generalization req.
- control the Evaluate
1. persuasive rather than conclusive whole response
2. cost-benefit consideration confirming
process
❖ Cost & difficulty in obtaining AE is not a 1. determine
valid reason to omit the AP & the AE to be the info to be
obtain if no alternative confirmed
2. to select the
3. sources of evidence confirming
party
❖ More AE ≠ quality (more AE will not 3. design the
compensate) confirmation
req.
Sufficient Appropriateness
4. sending &
- amount/quantity - relevance
follow-up of
C – competence - testing direction
confirmation
R – risk
req.
E – experience
M – materiality
❖ What if management didn’t permit to send
1. response without exception (reliable) a confirmation request? Ask or check
whether the reason is justifiable or valid.
2. response with exception (conduct further
investigation) Is the reason valid/justifiable?

3. response deemed unreliable (conduct further > Yes. Is there any alternative AP? If yes, perform
AP to check reliability
> No. Assess the impact to auditor’s opinion
4. non-response

(-) CONFIRMING ACCOUNTS

> confirming parties agree I – investment purchased/procured from brokers

but not yet delivered
(+)
P – purchase title/deeds held by bank or
> discuss with mgmt. financier for safety, deposit or collateral
> alternative AP A – AR balance
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)
✓ Conduct further AP appropriate in the
B – bank balances and other information
circumstances
A – AP balances - attend 3rd party’s PIC
- request for other auditor’s report
L – loans from lenders
- inspect documentation regarding
L – litigation / lawyers inventory held by 2rd parties (bill of lading)
I – inventories held by 3rd party for processing
or on consignment SEGMENT INFORMATION – 501

T – terms of agreement o Under IFRS 8 – that SI is an integral part

of FS and gives a clearer picture what’s
A – absence of signed agreement (3rd party)
happening inside the operations
o Reportable segment
PSA 501/540 – specific items wherein the auditor o Management is responsible
should select

1. Attendance at physical count of inventory- LITIGATIONS AND CLAIM (WARRANTS) OF

501 MANAGEMENT – 501 / completion

Objective: verify the existence and coordination o Identify and carry our procedures to
of the inventories determine any pending litigations & claims
that has a direct effect to FS
Is attendance to PIC practicable?
1. inquiry to mgmt.
> yes --- attend the PIC
2. read the minutes of the meeting &
> no --- any alternative AP?
correspondence
If yes, perform
3. review the legal expense activity
If none, assess the impact of that scope
4. letter of inquiry
limitation (Q or D)

AUDITING ACCOUNTING ESTIMATES – 540

Alternative AP:
o Higher risk of MM
- bill of lading
Management’s responsibility – making an
- shipping docs
acctg estimates
- PO
- properly disclosed (methods, assumptions,
- sales used data, MAP) and accounted

Auditor’s responsibility – acctg estimate is

Inventories held by 3rd party. properly disclosed and accounted
Auditor: - acctg estimate is responsible in the
✓ Request for third party confirmation circumstances
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

Reasonable: TESTING PHASE

o Objective & not susceptible to bias TOC ---- controls leave documentary trail
o Consistent to industry guidelines
o Consistent to historical patterns Audit sampling is not effective when:

1. TOC without documentary trail

❖ Point with range or estimates – to compare
the estimates of mgmt. for reasonableness 2. inquiry and observation

3. analytical procedure

4. procedures applied on every item

CHAPTER 9 5. procedures from which the auditor does not
100% Audit Selective intend to extend the conclusion to the
examination sampling testing remaining account

6. untested balances – selective testing, naiwan

1. population < 100% of N < 100%
constitute - sampling sa selective testing, no equal chance to be
small number units have - testing selected
of large value equal chance specific /
or selected
2. high risk of opportunity items SAMPLING RISK – conclusion drawn on sample is
MM & other to be selected different to the entire population
procedure will - you do not
not provide Ex. give
sufficient 500 – conclusion to Test of Control
appropriate representative the selected
AE sample items Type I (Alpha Risk) Type II (Beta Risk)
5% deviation – -IC not reliable, but, - IC is reliable when in
3. repetitive true H – high in reality, it’s effective fact it’s not (risk of
calculations representation value / key & reliable (risk of over reliance)
or other of the items under reliance)
process population A – all items - MM doesn’t exist
performed over a - MM does exist, when when in fact it does
automatically Representative certain in fact it doesn’t (risk (risk of incorrect
makes 100% sample – amount of incorrect rejection) acceptance)
examination characteristics I – items to
cost-effective of the entire obtain info STATISTICAL SAMPLING – law of probability
population I – items to
test - random based selection
Sampling unit procedure
– constitute
the entire NONSTATISTICAL SAMPLING – judgmental
population; sampling
physical or
monetary
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

SAMPLING RISK – compliment of confidence SUBSEQUENT EVENTS – occur after FS

level.

- direct relationship to sample size

Interim subsequent

adj. type 1. disc. type II

Increases in: Effect on SS
Risk of assessing Decrease
control risk too low
Tolerable rate Decrease Beg.---Fs---auditor’s report date--issuance date
Expected population Increase
deviation rate
Population Increase Adjustment – conditions existing on or before FS
date (litigations, uncollectible, disposal of
investments)

Disclosure – conditions existed after FS date

CHAPTER 10

1. preliminary engagement activities Auditor’s report date

2. audit planning – scope, procedure, evidence o most important date

using risk assessment procedure o auditors finish all audit procedures & issue
the report
3. testing phase – TOC and ST
o until when the auditor is responsible
o any SE between FS date to auditor’s report
❖ In place – implementation date is your responsibility
❖ As intended – strong

Auditor’s report date ------------- issuance date

AR = UQ – failed to modify
SE
UQ but correct opinion is Q = audit risk
❖ it’s the management’s responsibility to
inform you
Before issuing that FS is fairly stated ❖ or as you are aware
1. identify SE

2. identify contingencies SE after auditor’s report

3. wrap-up procedures

3.1. analytical procedures FS are not yet issue FS are subsequently

3.2. going concern | issued
Make appropriate |
3.3. adjusting entries necessary actions To entity: notify the
| responsible persons
4. obtain a written representation Mgmt. failed to make for the overall
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)
Necessary adj/revision direction of the Appropriate but with material uncertainties:
| entity not to issue
Issue: Q or A the FS Adequately disclosed – unqualified with separate
| section of unqualified + EMP
To 3 parties: make
rd
Not adequately disclosed – qualified / adverse
actions to prevent
reliance to auditor’s with basis
report
Inappropriate – adverse

Date of auditor’s report

Multiple uncertainties / extreme causes -
Adjustment = original date
disclaimer
Disclosure =

1. SE dare (responsible & review procedure are ❖ the entity has thee right or ability to dispose,
extended sell or liquidate its assets for the going
concern or to refinance a debt
2. dual date (original + subsequent event date

Letter of general inquiry – requests the entity’s

external legal counsel to inform the auditor of CHAPTER 11
any litigation and claims that the counsel is
aware of, together with an assessment of the Compliance – walang hinihingi
outcome of the litigation and claims, and an Fair presentation framework – depart
estimate of the financial implications, including
Special purpose – supplier, investor
costs involved.
PSA 700 – auditor’s report contains clear
Specific inquiry – you are the one who will say, Unmodified report – fairly presented and
they just have to confirm. If it’s considered uniform wording
unlikely that the entity’s external legal counsel
will respond appropriately to a letter of general Modified – Fs are fairly presented, in all
inquiry, for example, if the professional body to material aspects
which the external legal counsel belongs Adverse – FS do not present fairly
prohibits response to such a letter the auditor
Qualified – except for
may seek direct communication through a letter
of specific inquiry. Disclaimer – does not express an opinion

Reasonableness of going concern – assumptions TAOB-MASAD

Appropriate and no material uncertainty exist – T - title

unqualified
A - addressee

O - opinion
 AUDITING ASSURANCE AND PRINCIPLES (NOTES)

B – basis for conclusion T – tragedy (major catastrophe)

M – management responsibility

A – auditor’s responsibility OTHER MATTER PARAGRAPH

S - signature - inaallow if the matters are not included in

KAM
A – address
C – comparative information
D – date
R – restriction on the distribution or use of
report
❖ auditor’s responsibility can be changed and
basis for opinion when it comes to disclaimer O – material inconsistency in other information
type of opinion because in here, you do not
W – inability to withdraw from engagement
express an opinion and basis
S – subsequent discovery of facts
PIECEMEAL S – reporting on more than one set of FS
✓ overall, adverse or disclaimer prepared using different framework
✓ issue A or D as a whole but there are some
parts na iba ang opinion
Comparative – state opinion for other
✓ PSA 205 doesn’t allow this because it’s
year/periods presented in initial audit
dangerous and overshadowing
engagement on the opening balance of the
✓ Na ooverlook ng users
current FS

KEY AUDIT MATTER ❖ If opening balance is MMM ask the mgmt. to

make revision, if refused, auditor will issue
- professional judgment is most significant Q/A
- no KAM in disclaimer ❖ If FS mali, make entity to revise
❖ If other info mali, make amendments – Q/A

EMPHASIS MATTER PARAGRAPH

- emphasize important matters included in FS

- draw attention to readers

G – going concern

U – uncertainties

E – early application of new acctg est

S – subsequently discovery of facts

S – special purpose of FS