THE AUDIT PROCESS

Next Period

Preliminary Engagement Activities

Issuing a Report

Audit Planning

Completing

the Audit

Considering Internal Control

Performing Substantive Tests

Preliminary Engagement -------Activities

Related PSAs ---------------------------------------------------------------------------PSA 210, 220, and 300

Preliminary Engagement Activities are performed to determine whether the auditor is qualified to handle the engagement and to evaluate whether the clients financial statements are auditable or not. Related PSAs provide details of consideration before accepting an audit engagement. PSA 300: PLANNING AN AUDIT OF FINANCIAL STATEMENTS ______________________________________________________________________ Preliminary Engagement Activities The auditor shall undertake the following activities at the beginning of the current audit engagement: Performing procedures required by PSA 220, Quality Control for Audits of Historical Financial Information regarding the continuance of the client relationship and the specific audit engagement; Evaluating compliance with ethical requirements, including independence, Establishing an understanding of the terms of the engagement, as required by PSA 210, Terms of Audit Engagements.

PSA 210: AGREEING THE TERMS OF AUDIT ENGAGEMENTS Preconditions for an Audit Determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable. Obtain the agreement of management that it acknowledges and understands its responsibility. If management or those charged with governance impose a limitation on the scope of the auditors work in the terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept such a limited engagement as an audit engagement, unless required by law or regulation to do so.

If the preconditions for an audit are not present, the auditor shall discuss the matter with management.

Agreement on Audit Engagement Terms The auditor shall agree the terms of the audit engagement with management or those charged with governance, as appropriate.

Recurring Audits On recurring audits, the auditor shall assess whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing terms of the audit engagement.

Acceptance of a Change in the Terms of the Audit Engagement The auditor shall not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so. If, prior to completing the audit engagement, the auditor is requested to change the audit engagement to an engagement that conveys a lower level of assurance, the auditor shall determine whether there is reasonable justification for doing so. If the terms of the audit engagement are changed, the auditor and management shall agree on and record the new terms of the engagement in an engagement letter or other suitable form of written agreement.

Form and Content of the Audit Engagement Letter The form and content of the audit engagement letter may vary for each entity. An audit engagement letter may make reference to, for example: Elaboration of the scope of the audit, including reference to applicable legislation, regulations, PSAs, and ethical and other pronouncements of professional bodies to which the auditor adheres. The form of any other communication of results of the audit engagement. The fact that because of the inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with PSAs. Arrangements regarding the planning and performance of the audit, including the composition of the audit team. The expectation that management will provide written representations The agreement of management to make available to the auditor draft financial statements and any accompanying other information in time to allow the auditor to complete the audit in accordance with the proposed timetable. The agreement of management to inform the auditor of facts that may affect the financial statements, of which management may become aware

during the period from the date of the auditors report to the date the financial statements are issued. The basis on which fees are computed and any billing arrangements. A request for management to acknowledge receipt of the audit engagement letter and to agree to the terms of the engagement outlined therein. Arrangements concerning the involvement of internal auditors and other staff of the entity. Arrangements to be made with the predecessor auditor, if any, in the case of an initial audit. Any restriction of the auditors liability when such possibility exists. A reference to any further agreements between the auditor and the entity. Any obligations to provide audit working papers to other parties.

PSA 220: QUALITY CONTROL FOR AN AUDIT OF FINANCIAL STATEMENTS Leadership Responsibilities for Quality on Audits The engagement partner shall take responsibility for the overall quality on each audit engagement to which that partner is assigned.

Relevant Ethical Requirements Throughout the audit engagement, the engagement partner shall remain alert, through observation and making inquiries as necessary, for evidence of noncompliance with relevant ethical requirements by members of the engagement team. If matters come to the engagement partners attention through the firms system of quality control or otherwise that indicate that members of the engagement team have not complied with relevant ethical requirements, the engagement partner, in consultation with others in the firm, shall determine the appropriate action. The engagement partner shall form a conclusion on compliance with independence requirements that apply to the audit engagement.

Acceptance and Continuance of Client Relationships and Audit Engagements The engagement partner shall be satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and audit engagements have been followed, and shall determine that conclusions reached in this regard are appropriate. If the engagement partner obtains information that would have caused the firm to decline the audit engagement had that information been available earlier, the engagement partner shall communicate that information promptly to the firm, so that the firm and the engagement partner can take the necessary action.

Documentation The auditor shall document: Issues identified with respect to compliance with relevant ethical requirements and how they were resolved. Conclusions on compliance with independence requirements that apply to the audit engagement, and any relevant discussions with the firm that support these conclusions. Conclusions reached regarding the acceptance and continuance of client relationships and audit engagements. The nature and scope of, and conclusions resulting from, consultations undertaken during the course of the audit engagement.

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Audit Planning

Related PSAs --------------------------------------------------------------------------------PSA 300, 315, 320, 330, and 520

In planning the audit, the auditor obtains sufficient understanding of the entity and its environment to understand the transactions and events affecting the financial statements and to identify potential problems. A preliminary assessment of risk and materiality is made to be able to develop an overall audit strategy and a detailed approach for the expected conduct and scope of the examination. PSA 300: PLANNING AN AUDIT OF FINANCIAL STATEMENTS

Planning Activities The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan. In establishing the overall audit strategy, the auditor shall: Identify the characteristics of the engagement that define its scope; Ascertain the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required; Consider the factors that, in the auditors professional judgment, are significant in directing the engagement teams efforts; Consider the results of preliminary engagement activities and, where applicable, whether knowledge gained on other engagements performed by the engagement partner for the entity is relevant. Ascertain the nature, timing and extent of resources necessary to perform the engagement. The nature, timing and extent of planned risk assessment procedures, as determined under PSA 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment. The nature, timing and extent of planned further audit procedures at the assertion level, as determined under PSA 330, The Auditors Responses to Assessed Risks. Other planned audit procedures that are required to be carried out so that the engagement complies with PSAs.

PSA 315: IDENTIFYING AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT

Risk Assessment Procedures and Related Activities The auditor shall perform risk assessment procedures to provide a basis for the identification and assessment of risks of material misstatement at the financial statement and assertion levels. Risk assessment procedures by themselves, however, do not provide sufficient appropriate audit evidence on which to base the audit opinion. The auditor shall consider whether information obtained from the auditors client acceptance or continuance process is relevant to identifying risks of material misstatement.

The Required Understanding of the Entity and its Environment, Including the Entitys Internal Control The auditor shall obtain an understanding of internal control relevant to the audit. When obtaining an understanding of controls that are relevant to the audit, the auditor shall evaluate the design of those controls and determine whether they have been implemented, by performing procedures in addition to inquiry of the entitys personnel. The auditor shall obtain an understanding of the control environment. The auditor shall obtain an understanding of whether the entity has a process for: identifying business risks relevant to financial reporting objectives; estimating the significance of the risks; assessing the likelihood of their occurrence; and deciding about actions to address those risks. If the entity has established such a process (referred to hereafter as the entitys risk assessment process), the auditor shall obtain an understanding of it, and the results thereof. The auditor shall obtain an understanding of the information system, including the related business processes. The auditor shall obtain an understanding of how the entity communicates financial reporting roles and responsibilities and significant matters relating to financial reporting, The auditor shall obtain an understanding of control activities relevant to the audit, being those the auditor judges it necessary to understand in order to assess the risks of material misstatement at the assertion level and design further audit procedures responsive to assessed risks.

In understanding the entitys control activities, the auditor shall obtain an understanding of how the entity has responded to risks arising from IT. The auditor shall obtain an understanding of the major activities that the entity uses to monitor internal control over financial reporting. The auditor shall obtain an understanding of the sources of the information used in the entitys monitoring activities.

Identifying and Assessing the Risks of Material Misstatement The auditor shall identify and assess the risks of material misstatement at the financial statement level and at the assertion level for classes of transactions, account balances, and disclosures to provide a basis for designing and performing further audit procedures. The auditor shall: Identify risks throughout the process of obtaining an understanding of the entity and its environment. Assess the identified risks, and evaluate whether they relate more pervasively to the financial statements as a whole and potentially affect many assertions. Relate the identified risks to what can go wrong at the assertion level. Consider the likelihood of misstatement. The auditor shall determine whether any of the risks identified are, in the auditors judgment, significant risk. When the auditor has determined that a significant risk exists, the auditor shall obtain an understanding of the entitys controls, including control activities, relevant to that risk.

Material Weakness in Internal Control The auditor shall evaluate whether, on the basis of the audit work performed, the auditor has identified a material weakness in the design, implementation or maintenance of internal control. The auditor shall communicate material weaknesses in internal control identified during the audit on a timely basis to management at an appropriate level of responsibility.

Documentation The auditor shall document: The discussion among the engagement team and the significant decisions reached.

 Key elements of the understanding obtained regarding each of the aspects of the entity and its environment and of each of the internal control components; the sources of information from which the understanding was obtained; and the risk assessment procedures performed. The identified and assessed risks of material misstatement at the financial statement level and at the assertion level.

The risks identified, and related controls about which the auditor has obtained an understanding.

PSA 320: MATERIALITY IN PLANNING AND PERFORMING AN AUDIT

Determining Materiality and Performance Materiality when Planning the Audit The auditor shall determine materiality for the financial statements as a whole. The auditor shall determine performance materiality for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. The auditor obtains reasonable assurance by obtaining sufficient appropriate audit evidence to reduce audit risk to an acceptably low level. Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Audit risk is a function of the risks of material misstatement and detection risk. Materiality and audit risk are considered throughout the audit, in particular, when: Identifying and assessing the risks of material misstatement; Determining the nature, timing and extent of further audit procedures; and Evaluating the effect of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditors report. The Audit Risk Model

AUDIT RISK

AUDIT RISK

AUDIT RISK

AUDIT RISK

PSA 330: THE AUDITORS RESPONSES TO ASSESSED RISKS Audit Procedures Responsive to the Assessed Risks of Material Misstatement at the Assertion Level

The auditor shall design and perform further audit procedures whose nature, timing, and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level. In designing the further audit procedures to be performed, the auditor shall: Consider the reasons for the assessment given to the risk of material misstatement at the assertion level for each class of transactions, account balance, and disclosure, including: The likelihood of material misstatement due to the particular characteristics of the relevant class of transactions, account balance, or disclosure (i.e., the inherent risk); and Whether the risk assessment takes account of relevant controls (i.e., the control risk), thereby requiring the auditor to obtain audit evidence to determine whether the controls are operating effectively (i.e., the auditor intends to rely on the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures); and

Obtain more persuasive audit evidence the higher the auditors assessment of risk.

PSA 520: ANALYTICAL PROCEDURES Steps in applying analytical procedure Develop expectations regarding financial statements

Compare the expectations with the financial statements under audit

Investigate significant differences

Uses of analytical procedures As a planning tool, to determine the nature, timing, and extent of other auditing procedures. As a substantive test to obtain corroborative evidence about particular assertions related to the account balance transaction class. As an overall review of the financial statements in completion phase of the audit.

Using analytical procedures as a planning tool

Compare financial statements with expectations

Determine the difference between the expected and recorded balances

Is the difference significant?

YES

Design more extensive substantive tests

NO Design less extensive substantive tests

Considering Internal Control -

Related PSAs ----------------------------------------------------------------------------------PSA 315

___________________________________________________________________________ The auditor considers the entitys internal control because the condition of the entitys internal control directly affects the reliability of the financial statements. The stronger the internal control, the more assurance it provides about the reliability of accounting data and financial statements. PSA 315: IDENTIFYING AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT

Nature of Internal Control Internal control is a process. Internal control is affected by those charged with governance, management and other personnel. Internal control can be expected to provide reasonable assurance of achieving the entitys objectives. Internal control is designed to help achieve the entitys objectives.

Components of Internal Control Control environment Factors reflected in the control environment include: Integrity and ethical values Management philosophy and operating style Active participation of those charged with governance Commitment to competence Personnel policies and procedures Assignment of responsibility and authority/ organizational structure

Risk Assessment Information and Communication Systems Control Activities Performance reviews Information processing Physical controls Segregation of duties

Monitoring

Consideration of Internal Control Obtain understanding of the internal control Evaluate the design of control Make inquiries of appropriate individuals Inspect documents and records Observe entitys activities and operations

Determine whether it has been implemented. Document the understanding of the internal control Narrative description of the entitys internal control Flowchart that diagrams the flow of transactions and documents Internal control questionnaire providing managements responses to questions about internal control. Assess the level of control risk Identify specific internal control policies or procedures that are likely to prevent or detect and correct material misstatement relevant to financial statement assertion, and Perform test of control to determine the effectiveness such policies or procedures. Perform tests of controls To obtain the effectiveness of the design of the accounting and internal control systems, or

 To obtain the effectiveness of the operation of the internal controls throughout the period. Document the assessed level of control risks If the control risk is assessed at a HIGH LEVEL, the auditor should document his conclusion that control risk is at a high level. If the control risk is assessed at LESLEVEL, the auditor should document his conclusion that control risk is less than high and the basis for that assessment.

Communication of Internal Control Weakness The auditors are not required to search for and/or identify internal control weaknesses. However, they must communicate internal control weaknesses to the client when they come to their attention during the course of the audit.

Performing Substantive --Tests

Related PSAs --------------------------------------------------------------------------------PSA 230, 500, 520, 530, 540, 550, 610, and 620

___________________________________________________________________________ Using the information obtained in audit planning and consideration of internal control, the auditor performs substantive tests to determine whether the entitys financial statements are presented fairly in accordance with financial reporting standards. Performing substantive tests involves examination of the documents and evidence supporting the amounts and disclosures in the financial statements.

PSA 520: ANALYTICAL PROCEDURES

Analytical procedures as Substantive Tests

Develop expectations about the Financial Statements

Compare the Financial Statements with the Expectations Developed

YES Is the difference significant? Conduct further investigation

NO Accept the amount as reasonable

Test of Details Involves examining the actual details making up the various account balances.

Effectiveness of Substantive Tests Nature of Substantive Test Relates to quality of evidence. The auditor should determine the appropriate quality of evidence needed to support the desired level of detection risk. Timing of Substantive Test Maybe performed at interim date or at year end. It assists the auditor in identifying significant matters at an early stage of the audit. Allows the auditor to spread the word throughout the year, thus, minimizing the load during the peak period. Interim procedures are generally considered less effective than year end procedures. Extent of Substantive Test Relates to the amount of evidence needed to satisfy a particular objective.. This is based on the auditors judgment after considering the materiality, the assessed risk, and the level of assurance the auditor plans to attain.

PSA 500: AUDIT EVIDENCE

Attributes of Audit Evidence Sufficiency- refers to the amount of evidence that the auditor should accumulate. The competence of evidence The materiality of the item being examined The risk involved in a particular account Experience gained during the previous audit may indicate the amount of evidence taken before and whether such evidence was enough

Appropriateness- is the measure of the quality of audit evidence and its relevance to a particular assertion and its reliability. Audit evidence obtained from independent outside sources is more reliable that that generated internally Audit evidence generated internally is more reliable when the related accounting and internal control systems are effective Audit evidence obtained directly by the auditor is more reliable that that obtained from the entity Audit evidence in the form of documents and written representations is more reliable than oral representations.

PSA 230: AUDIT DOCUMENTATION

Functions of the Working Papers Primarily: To support an opinion on financial statements To support representation that the audit was conducted in accordance with PSA Secondarily: Assists the auditor in planning future audits Providing information useful in rendering other services Providing adequate defense in case of litigation

Form, Content and Extent of Audit Documentation Depend on factors such as The size and complexity of the entity The nature of the audit procedures to be performed The identified risks of material misstatements The significance of audit evidence obtained The nature and extent of exceptions identified

 The need to document a conclusion or a basis for a conclusion not readily determinable from the audit evidence obtained The audit methodology and tools used Depends upon the auditors judgment Discussion of significant matters with management and others on a timely basis When the auditor judges it necessary to depart from a basic principle or an essential procedure that is relevant in the circumstances of the audit In documenting the nature, timing and extent of audit procedures performed, the auditor should record: Who performed the audit work and the date such work was completed Who reviewed the audit work performed and the date and extent of such review

Classification of Working Papers Permanent File- contains information of continuing significance to the auditor in performing recurring audits. Copies of the article of the incorporation and by-laws Major contracts Engagement letter Organizational chart Analyses of long-term accounts Internal control analysis Current File- contains evidence gathered and conclusions reached relevant to the audit of a particular year. A copy of the financial statements Audit program Working trial balance Lead schedules Detailed schedules Correspondence with other parties such as lawyers, customers, banks, and management.

Ownership of Working Papers Working papers are the property of the auditor and the client has no right to the working papers prepared by the auditor.

Confidentiality of Working Papers Working papers cannot be shown to third parties or in the public without the clients permission. However, auditor can disclose confidential information to third parties even without the clients consent: When disclosure is required by law When there is a professional right to disclose the information When the profession requires Retention of Working Papers Working papers should be retained by the auditor for a period of time sufficient to meet the needs of his practice. The retention period for audit engagement must be at least 5 years from the date of the auditors report. However, SEC Securities Regulation Code No. 68 requires that audit working papers be kept for at least 7 years.

PSA 540: AUDITING ACCOUNTING ESTIMATES, INCLUDING FAIR VALUE ACCOUNTING ESTIMATES, AND RELATED DISCLOSURES

Examples of Situations Where Accounting Estimate Maybe Required Allowance for doubtful accounts Inventory obsolescence Warranty obligations Depreciation Impairment loss Fair value determination

Auditors Responsibility Obtain sufficient appropriate evidence as to whether Accounting estimate is properly accounted for and disclosed Accounting estimate is reasonable in the circumstances Obtain an understanding of the procedures and methods in making the accounting estimates Review and test the process used by management to develop the estimate Evaluating data and management assumptions Testing of calculations Comparing prior periods estimates with actual results Considering management approval procedures

Make an independent estimate Review subsequent events which confirm the estimate made

PSA 550: RELATED PARTIES

Auditors Responsibility The auditor should inquire of management regarding: The identity of the entitys related parties The nature of the relationships between the entity and these related parties Whether the entity has entered into any transactions with these related parties during the period The auditor should obtain understanding of the controls that management has established to identify, account for, and disclose related party relationship and transactions. Identify related parties Review prior year working papers for names of known related parties Review the entitys procedures for identification of related parties Inquire as to the affiliation of the directors and officers with other entities

 Review shareholder records to determine the names of the principal shareholders Review minutes of the meetings of shareholders and the board of directors Inquire of other auditors currently involved in the audit

Review the entitys income tax returns and other information supplied to regulatory agencies Identify related party transactions Performing detailed tests of transactions and balances Reviewing minutes of shareholders and directors Reviewing accounting records for large or unusual transactions Reviewing confirmations of loans receivable and payable and confirmations from banks Reviewing investment transactions

PSA 620: USING THE WORK OF AN AUDITORS EXPERT Determining the Need for an Expert The auditor would consider: The materiality of the financial statement item being considered The risk of misstatement is based on the nature and complexity of the matter being considered The quality and quantity of other audit evidence available

Using the Work of an Expert When the auditor concludes that the work of the expert is needed to support an assertion, the auditor should: Assess the experts professional competence and objectivity Evaluate the scope of the experts fieldwork The objectives and scope of the experts work Methods and assumptions to be used by the expert The intended use by the auditor of the experts work

Forma and content of the experts report Experts relationship to the client

Assess the work of the expert

PSA 610: USING THE WORK OF INTERNAL AUDITORS Preliminary Assessment of Internal Auditing The external auditor should consider the internal auditors Competence Objectivity Due professional care Scope of function

Evaluating and Testing the Work of Internal Auditors The auditor should evaluate and test the internal auditors work to confirm its adequacy for the external auditors purposes.

PSA 530: AUDIT SAMPLING When designing audit procedures, the auditor should determine appropriate means of selecting items for testing. The means available to the auditor are: Selecting all items (100% examination); Selecting specific items, and Audit sampling.

Selecting All Items 100% examination may be appropriate on the following When the population constitutes a small number of large value items; When both inherent and control risks are high and other means do not provide sufficient appropriate audit evidence; or When the repetitive nature of a calculation or other process performed by a computer information system makes a 100% examination cost effective.

Selecting Specific Items The judgmental selection of specific items is subject to non-sampling risk. Specific items selected may include: High value or key items All items over a certain amount Items to obtain information Items to test procedures

Risk Considerations in Obtaining Evidence Sampling risk Nonsampling risk Failure to select appropriate audit procedures Failure to recognize errors in documents examined Misinterpreting the results of audit tests

General approaches to audit sampling Statistical sampling Nonstatistical sampling

Sample Selection Methods Appropriate for statistical and non statistical sampling Use of a computerized random number generator or random number tables Systematic selection Not appropriate for statistical sampling Haphazard selection Block selection

Attribute Sampling Plan Determine the objective(s) of the tests

Define the attribute (characteristic of a control) and deviation (absence of an attribute) conditions Define the population Determine the method of sample selection Determine sample size Perform the sampling plan Evaluate sample results Document the sampling plan, the procedures performed, and the conclusions reached

Variables Sampling Plan Determine the objective(s) of the tests Define the population Choose an audit sampling approach/technique Determine sample size Determine the method of sample selection Perform the sampling plan Evaluate sample results Document the sampling plan, the procedures performed, and the conclusions reached

Sampling techniques Probability-proportional-to-size (PPS) sampling Classical variables sampling Ratio estimation Difference estimation Mean-per-unit estimation

Completing

the Audit

Related PSAs ------------------------------------------------------------------------PSA 501, 520, 560, and 580

After the fieldwork is almost complete, a series of procedures are generally carried out to complete the audit. These procedures include: Identifying subsequent events that may affect the financial statements under audit Identifying contingencies such as litigation, claims and assessment Obtaining written management representation Performing wrap-up procedures

PSA 560: SUBSEQUENT EVENTS

Procedures to Identify Subsequent Events Obtaining an understanding of any procedures management has established to ensure that subsequent events are identified. Inquiring of management as to whether any subsequent events have occurred which might affect the financial statements. Reading the minutes of board of directors and stockholders meetings that have been held after the date of the financial statements. Reading the latest subsequent interim financial statements as well as management reports such as budgets and forecasts. Inquiring of the entitys lawyers concerning litigation, claims, and assessments.

Subsequent Events occurring after the Report Date but before the financial statements are issued. The auditor has no responsibility to perform procedures to identify subsequent events occurring after the date of the audit report.

PSA 501: AUDIT EVIDENCE SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS

Litigation and Claims The auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including: Inquiry of management and, where applicable, others within the entity, including in-house legal counsel; Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and Reviewing legal expense accounts.

PSA 580: WRITTEN REPRESENTATIONS

Requirements The auditor shall request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned. The auditor shall request management to provide a written representation that it has fulfilled its responsibility for the preparation and presentation of the financial statements as set out in the terms of the audit engagement. The auditor shall request management to provide a written representation that it has provided the auditor with all relevant information agreed in the terms of the audit engagement.

Date of and Period(s) Covered by Written Representations The date of the written representations shall be as near as practicable to, but not after, the date of the auditors report on the financial statements.

Form of Written Representations The written representations shall be in the form of a representation letter addressed to the auditor.

Doubt as to the Reliability of Written Representations and Requested Written Representations Not Provided The auditor shall determine the effect that such concerns may have on the reliability of representations (oral or written) and audit evidence in general. If written representations are inconsistent with other audit evidence, the auditor shall perform audit procedures to attempt to resolve the matter. If the auditor concludes that the written representations are not reliable, the auditor shall take appropriate actions, including determining the possible effect on the opinion in the auditors report.

Requested Written Representations Not Provided If management does not provide one or more of the requested written representations, the auditor shall: Discuss the matter with management; Reevaluate the integrity of management and evaluate the effect that this may have on the reliability of representations (oral or written) and audit evidence in general; and Take appropriate actions, including determining the possible effect on the opinion in the auditors report.

Written Representations about Managements Responsibilities The auditor shall disclaim an opinion on the financial statements in accordance with PSA 705 if: The auditor concludes that there is sufficient doubt about the integrity of management such that the written representations. Management does not provide the written representations.

PSA 520: ANALYTICAL PROCEDURES

Analytical Procedure in the Completion Phase Identifying unusual fluctuations that were not previously identified. Assessing the validity of the conclusions reached and evaluating the overall financial statement presentation.

POST AUDIT RESPONSIBILITIES- Events after the FS have been issued

Subsequent discovery of facts The auditor has no obligation to make any inquiry unless he becomes aware of the material fact: Which is existed at the date of the auditors report Which may have caused the auditor to modify the report. Discuss the matter with the appropriate level of management Advise management to take the necessary steps to ensure that the users of the previously issued financial statements are informed to the situation.

Issuing a Report

Related PSAs ----------------------------------------------------------------------------------PSA 700, 710, and 620

PSA 700: FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS Forming an Opinion on the Financial Statements The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. The auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. The auditor shall evaluate whether the financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework.

Form of Opinion The auditor shall express an UNMODIFIED OPINION when the auditor concludes that the financial statements are prepared, in all material respects. The auditor shall modify the opinion in the auditors report: concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or

is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement, If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the auditor shall discuss the matter with management.

Auditors Report The auditors report shall be in writing: Title

 Addressee Introductory Paragraph Managements Responsibility for the Financial Statements Auditors Responsibility Auditors Opinion Other Reporting Responsibilities Signature of the Auditor Date of the Auditors Report Auditors Address

PSA 710: COMPARATIVE INFORMATION CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS Audit Reporting When corresponding figures are presented, the auditors opinion shall not refer to the corresponding figures. The auditor shall express a qualified opinion or an adverse opinion in the auditors report on the current period financial statements: Material misstatement exists in the prior period financial statements on which an unmodified opinion has been previously issued, The corresponding figures have not been properly restated or appropriate disclosures have not been made.

Prior Period Financial Statements Audited by a Predecessor Auditor The auditor shall state in an Other Matter paragraph in the auditors report: That the financial statements of the prior period were audited by the predecessor auditor; The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the reasons therefore, The date of that report.

Prior Period Financial Statements Not Audited The auditor shall state in an Other Matter paragraph in the auditors report that the corresponding figures are UNAUDITED.

PSA 620: USING THE WORK OF AN AUDITORS EXPERT

Reference to the Auditors Expert in the Auditors Report The auditor shall not refer to the work of an auditors expert in an auditors report containing an unmodified opinion unless required by law or regulation to do so. If the auditor makes reference to the work of an auditors expert in the auditors report because such reference is relevant to an understanding of a modification to the auditors opinion, the auditor shall indicate in the auditors report that such reference does not reduce the auditors responsibility for that opinion.