Outline the stages of an audit

Defineprofessionalscepticism

Auditors are required to carry out the audit with an attitude of professional scepticism, exercise professional judgement and comply with ethical requirements.

Professional scepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

 

Professional judgement is the application of relevant training, knowledge and experience in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.

 

Professional skepticism

ISA 200 states that auditors must plan and perform an audit with an attitude of professional skepticism recognising that circumstances may exist that cause the financial statements to be materially misstated. This requires the auditor to be alert to:

 

· Audit evidence that contradicts other audit evidence obtained

· Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence

· Conditions that may indicate possible fraud

· Circumstances that suggest the need for audit procedures in addition to those required by ISAs

 

Professional scepticism needs to be maintained throughout the audit to reduce the risks of overlookingunusual transactions, over-generalising when drawing conclusions, and using inappropriate assumptions in determining the nature, timing and extent of audit procedures and evaluating the results of them. Professional scepticism is also necessary to the critical assessment of audit evidence. This includes questioning contradictory audit evidence and the reliability of documents and responses from management and those charged with governance.

 

(optional) 1.2.2 Professional judgement

 

ISA 200 also requires the auditor to exercise professional judgement in planning and performing an audit of financial statements. Professional judgement is required in the following areas:

 

· Materiality and audit risk

· Nature, timing and extent of audit procedures

· Evaluation of whether sufficient appropriate audit evidence has been obtained

· Evaluating management's judgements in applying the applicable financial reporting framework

· Drawing conclusions based on the audit evidence obtained

 

 

Describe the limitations of external audits