Summary of SA 200 – Objective of Independent Auditor and Conduct of Audit

@ Chartered Notes

In this blog post, we will provide a summary of the Standards on Auditing (SA) 200, which primarily sets the objectives of an Independent Auditor (IA) and conduct of the audit in accordance with the Standards on Auditing (SA). We will discuss the scope and applicability of this standard, overall objectives of the auditor, key definitions, requirements, and effective date.

Scope: The scope of SA 200 includes the overall objectives of IA, an IA’s general responsibilities, and the determination of the nature and scope of an audit necessary to achieve those responsibilities.

Applicability: The Standards issued by the Auditing and Assurance Standards Board apply equally to all entities, irrespective of their form, size, and nature.

Overall Objectives of the Auditor: The overall objectives of an IA with respect to the audit of financial statements are to obtain reasonable assurance whether the financial statements are free from material misstatement and report on the financial statements and communicate auditor’s findings as required by SA.

Definitions: Some important definitions include applicable financial reporting framework, audit evidence, detection risk, management, misstatement, and risk of material misstatement.

Requirements: The primary requirement of this SA is that an IA has to obtain reasonable assurance that the financial statements are free from material misstatements whether due to fraud or error. An IA must identify and assess the risk of material misstatement based on the understanding of the entity and its internal control, obtain sufficient audit evidence about whether material misstatement exists, and form an opinion on financial statements based on conclusions drawn from the audit evidence.

Key Requirements of an Independent Auditor: An IA should comply with all SAs relevant to the audit, have a complete understanding of the SA including its application and explanatory material, and represent the fact that only the IA complies with all the requirements of an SA in the IA’s report.

Objective stated in the Individual SA: When planning and performing the audit, an IA should use all the objectives set out in the SA, having regard to the interrelationships among various SAs, to determine whether any additional audit procedures are required to be performed apart from those stated in the SAs, evaluate whether sufficient appropriate audit evidence has been obtained, and comply with relevant SA requirements.

Complying with Relevant SA Requirements: An IA must comply with all the requirements of an SA unless the entire SA is not relevant or the relevant requirement is a conditional and the condition does not exist. An IA can depart from complying with certain requirements of SA based on judgment but has to perform alternative audit procedures to achieve the aim of that requirement. IA can restrain from the compliance only when specific audit procedure which even when performed are ineffective for that audit.

Failure to Achieve an Objective: If an objective in a relevant SA cannot be achieved and it in turn affects the overall objective of an IA, then SA requires IA’s opinion to be modified or withdraw from the engagement. Failure to achieve an objective represents a significant matter and requires to be documented as per SA 230.

Effective Date: This SA is effective for audits of financial statements for periods beginning on or after April 1, 2010.

In summary, SA 200 sets out the overall objectives of an Independent Auditor and conduct of the audit in accordance with the Standards on Auditing. It provides guidance on the scope and applicability of the standard, definitions, requirements, and key considerations for an IA. Compliance with this standard is necessary to ensure that audits are conducted in accordance with the applicable financial reporting framework and relevant regulations.