Topic 1-5

• Auditor independence


  Crucial in maintaining trust and confidence in the capital markets
• Stakeholders need to trust that auditors are independent of their client and of management
• Auditor independence is regulated by a combination of auditing standards, codes of ethics, professional association rules and legislation
• In Australia, the code has legal enforceability in respect of audits performed under the Corporations Act
• Independent

  The auditor complies with the independence requirements of the codes and law
• Auditor independence

  • No close relationships
  • No financial relationships
  • Don't stick around too long
  • Watch the types of services your firm provides to the client
• Independence

  Linked to the fundamental principles of objectivity and integrity
• Complying with independence rules

  1. Read and understand the code and your firm's policy or organisation's procurement policies

  2. Take independence checking processes seriously and complete them diligently

  3. Consult if unsure
• An unqualified audit opinion means that there were no material modifications needed to be made to the financial statements.
• Auditors are required to report on the financial statements, not just the accounts
• The auditor's opinion is expressed as an audit conclusion or audit opinion.
• A quality audit is likely to be achieved by an engagement team that:

  • Exhibits appropriate values, ethics and attitudes
  • is sufficiently knowledgeable, skilled and experienced
  • is given enough time to perform the audit work
  • applies a rigorous audit process and quality management procedures that comply with law, regulation and applicable standards
  • provides useful and timely reports
  • interacts appropriately with relevant stakeholders.
• ASIC, FMA NZ and PCAOB are all members of the International Forum of Independent Audit Regulators (IFIAR)
• Regulators monitor audit quality by conducting periodic inspections (audit inspections) of a sample of completed audit engagements during a given inspection cycle. The inspection cycle is typically a period of 12 to 18 months, depending on the jurisdiction.
• Regulator's objective in audit inspections

  To determine whether the auditor has met the requirements of the Auditing Standards and achieved the overall objectives for an independent auditor
• Audit inspection process

  1. Regulator issues an 'inspection findings report' to the auditor of each engagement inspected

  2. Possible outcomes range from requiring the auditor to perform relatively minor remediation of the audit documentation to requiring additional audit procedures to be performed

  3. Could result in the need for a restatement of previously issued financial statements and a new audit report being issued
• Fundamental ethical principles for professional accountants

  • Integrity
  • Objectivity
  • Professional competence and due care
  • Confidentiality
  • Professional behaviour
• Integrity


  Be straightforward and honest in all professional and business relationships
• Objectivity

  Exercise professional or business judgement without being compromised by bias, conflict of interest or undue influence or undue reliance on individuals, organisations, technology or other factors
• Professional competence and due care


  1. Attain and maintain professional knowledge and skill at the level required to ensure a client or employing organisation receives competent professional activities, based on current technical and professional standards and relevant legislation

  2. Act diligently and in line with applicable technical and professional standards
• Confidentiality


  Respect the confidentiality of information obtained as a result of professional and business relationships
• Professional behaviour

  Comply with relevant laws and regulations, behave in a manner consistent with the profession's responsibility to act in the public interest in all professional activities and business relationships, and avoid any conduct that discredits the profession
• The IESDA adopts a three-step conceptual framework approach. The auditor must:

  •Identify threats to the ability to comply with the five fundamental principles and be independent.

  •Evaluate the seriousness of those threats: would a reasonable and informed third party conclude that the auditor complies with the fundamental principles?

  •Address those threats — either by eliminating the cause of the threat or by putting in place safeguards that reduce the threat to an acceptable level.
• ISA 315 (Revised 2019) states that the auditor shall design and perform risk assessment procedures to obtain audit evidence that provides an appropriate basis for:

  1. the identification and assessment of risks of material misstatement, whether due to fraud or error at the financial statement level and assertion levels; and
  2. the design of further audit procedures in accordance with ISA 330.
• 1. Existence or Occurrence: This assertion states that the recorded transactions and balances actually exist and have occurred during the reporting period.
• 1. Completeness: This assertion ensures that all transactions and balances that should have been recorded have been included in the financial statements, and there are no omissions.
• 1. Accuracy or Valuation: This assertion ensures that the amounts and other data presented in the financial statements are accurate, properly valued, and free from material misstatement.
• 1. Rights and Obligations: This assertion relates to whether the entity has the legal rights to its assets and whether the liabilities are the obligations of the entity at the balance sheet date.
• 1. Presentation and Disclosure: This assertion focuses on whether the financial statements are properly presented and disclosed in accordance with the applicable accounting standards and regulatory requirements.
• 1. Cut-off: This assertion ensures that transactions are recorded in the correct accounting period, i.e., revenue is recognized when it is earned, and expenses are recognized when they are incurred.
• 1. Classification: This assertion ensures that transactions and balances are classified correctly in the financial statements, such as distinguishing between operating and non-operating items.