What is the Bangladesh standard on Audit(BSA-300) ? Describes in details

Auditing case study

Question-(01)

Apply Audit procedure, to obtain appropriate audit evidence when the auditor is unable to be present at the Physical inventory count due to unforeseen circumstances.

Ans:

If, the auditor is unable to be present at the Physical inventory count due to unforeseen circumstances. As per “BSA- 501” the auditor should take or observe some physical counts on an alternative date and when necessary, perform audit procedures on intervening transactions. Perform alternative audit procedures to assess whether the changes in inventory between the date of physical count and the period end date are correctly recorded.

Question-(02)

Apply Audit procedure, to obtain appropriate audit evidence when the entity involves any Litigation and claim.

Ans:

As per “BSA-501” The auditor should carry out audit procedures in order to become aware of any litigation and claims involving the entity which may result in a material misstatement of the financial statements. Such procedures should include-

01.  Make appropriate inquiries of management including obtaining representations

02.  Review minutes of those charged with governance and corresponding entities' legal counsel.

03.  Examine legal expense amount

04.  The auditor should seek direct communication with the entity's legal counsel.

05.  If the management refuses to give the auditor permission to communicate with the entity's legal counsel, this would be a scope limitation and should ordinarily lead to a qualified opinion or a disclaimer of the pinion.

Question-(03) (ISA-510 opening balances)

Apply Audit procedure, to obtain appropriate audit evidence when the financial

Statements are audited for the first time or when the financial statements for

The Prior period were audited by another auditor.

Ans:

For initial audit engagements, the auditor should obtain sufficient appropriate audit evidence concerning the opening balances that:

(a) The opening balances do not contain misstatements that materially affect the current period’s financial statements;

(b) The prior period’s closing balances have been correctly brought forward to the current period or, when appropriate, have been restated; and

(c) Appropriate accounting policies are consistently applied or changes in accounting policies have been appropriately accounted for and adequately presented and disclosed.

Audit Procedures

The sufficiency and appropriateness of the audit evidence the auditor will need

To obtain regarding opening balances depend on such matters as the

Following:

01. The accounting policies followed by the entity.

02. Whether the prior period’s financial statements were audited, and if so whether the auditor’s report was modified.

03. The nature of the accounts and the risk of material misstatement in the

Current period’s financial statements.

04. The materiality of the opening balances relative to the current period’s financial statements.

When the prior period’s financial statements were audited by another auditor, the current auditor may be able to obtain sufficient appropriate audit evidence regarding opening balances by reviewing the predecessor auditor’s working papers. In these circumstances, the current auditor would also consider the professional competence and independence of the predecessor auditor. If the prior period’s auditor’s report was modified, the auditor would pay particular attention in the current period to the matter which resulted in the modification.

Question-(04) (ISA-540 –Accounting estimate)

Audit procedures for Accounting Estimates

Ans:-

When the accounting estimate involved material misstatement in the financial statements, the auditor procedures include-

01. The auditor should design and perform further audit procedures to obtain sufficient appropriate audit evidence, so as to entity’s accounting estimates are reasonable in the circumstances.

02. Review and test the process used by management to develop the estimate.

03. Review subsequent events which provide audit evidence of the reasonableness of estimates.

04. Evaluation of the data and consideration of assumptions on which the estimate is based.

05. Testing of the calculations involved in the accounting estimate.

06. Consideration of management’s approval procedures

07. Compare of previous estimate with the actual results.

Question-(05)

 Audit procedures for going concern assumptions/or Risk assessment procedures

Ans_

In obtaining an understanding of the entity, the auditor should consider whether there are any events or conditions related to going concern or business risk have been identified which may cast significant doubt on the entity’s ability to continue  as a going concerns in performing audit procedures throughout the audit.

The auditor should-

01. Review management plans for future action based on its going concern assessment.

02. Gather sufficient appropriate audit evidence to confirm or dispel whether or not a material uncertainty exist.

03. Insure that adequate disclosure is made in the financial statements.

04. If that adequate disclosure is made in the financial statements, the auditor should express an unqualified audit opinion

05. If that adequate disclosure is not made in the financial statements, the auditor should express “a qualified or adverse audit opinion”

Question-(06)

 Audit Procedures for obtaining Audit evidence

The auditor obtains audit evidence to draw a reasonable conclusions on which to base the audit opinion by performing audit procedures to-

01.  Obtain and understanding of the entity and its environment, including its internal control, to assessed the risk of material misstatement at the financial statement and assertion level.

02.  Inspection of records or  documents

03. Inspection of tangible assets

04. Observation

05. Inquiry

06. Confirmation

07. Recalculation

08. Re performance

09. Analytical procedures

10. Substantive procedure

Question-(07)

 Audit Procedures for non-compliance

Finding

When the auditor becomes aware of information concerning the effect of noncompliance in the financial statements, the auditor should findings the documents and discusses them with the management. If the management does not provide satisfactory information that it is in fact incompliance, the auditor would consult with the entities lawyer about the application of the laws & regulation to the circumstances.

Reporting of noncompliance

The auditor should as soon as possible either communicate with those charged with governance, and finding sufficient appropriate audit evidence regarding noncompliance that comes to the auditor attention. If the auditor suspects that members of senior management, including the member of the board of directors are involved in noncompliance, the auditor should report the matter to the next higher level of authority at the entity.

Question-(08)

Audit Procedures for related party’s transactions

01. Performing details tests of transactions and balances

02. Reviewing minutes of meeting of shareholders and those charged with governance

03. Reviewing accounting records for large or unusual transactions or balances

04. Reviewing confirmations of loan receivables and payable

05. Reviewing investment transactions, for example purchase or sale of an equity interest in a joint venture or other entity.

Question-(09)

Audit Procedures for disagreement of opening balances

Ans:

Regarding all opening g balances

01. Check prior year closing balances have been correctly brought forward, or

02. Where appropriate restated

03. Consider impact of current year work on opening balances (eg bad debts write off in current year compare to opening provision).

04. Review management working papers, accounting & internal control system for prior year.

05. Decide whether opening balances need amendment.

Question-(10)

Management responsibility against fraud

IAS-240, set out management is the primary responsible for the prevention & detection of fraud rests with both those charge with governance of the entity and with management.

Question-(11)

 Auditors responsibility against fraud

01. The auditor must obtain reasonable assurance that the financial statement taken as a whole, are free from material misstatement caused by fraud or error.

When the auditors become aware of suspected or actual frauds or instances of non-compliance which should be reported to the relevant authority, they should:

01. Report to the management

02. Report to those charged with governance

03. Report to the regulatory and enforcement authority, where appropriate.

Question-(12)

Audit Procedures Responsive to the Risk of Material Misstatement of the Entity’s Fair Value Measurements and Disclosures.

Ans:

The auditor should design and perform further audit procedures in response to assessed risks of material misstatement of assertions relating to the entity’s fair value measurements and disclosures. ISA 330, “The Auditor’s Procedures in Response to Assessed Risks” discusses the auditor’s Responsibility to design and perform further audit procedures whose nature, Timing and extent are responsive to the assessed risk of material misstatement at the assertion level. Such further audit procedures include tests of control and substantive procedures, as appropriate. Paragraphs 34-55 below provide additional specific guidance on substantive Procedures that may be relevant in the context of the entity’s fair value measurements and disclosures

Question-(13)

Audit Procedures for related parties transaction and Disclosures.

Ans:

The auditor should review information provided by those charged with

Governance and management identifying the names of all known related parties and should perform the following audit procedures in respect of the completeness of this information:

(a) Review prior year working papers for names of known related

Parties;

(b) Review the entity’s procedures for identification of related parties;

(c) Inquire as to the affiliation of those charged with governance and

Officers with other entities;

(d) Review shareholder records to determine the names of principal

Shareholders or, if appropriate, obtain a listing of principal shareholders

From the share register;

(e) Review minutes of the meetings of shareholders and those charged

With governance and other relevant statutory records such as the

Register of directors’ interests;

(f) Inquire of other auditors currently involved in the audit, (g) Review the entity’s income tax returns and other information Supplied to regulatory agencies.

If, in the auditor’s judgment, there is a lower risk of significant related

Parties remaining undetected, these procedures may be modified as Appropriate.

Where the applicable financial reporting framework requires disclosure

Of related party relationships, the auditor should be satisfied that the Disclosure is adequate.

Question-(14) (ISA-701)

Factors that may have influenced the auditor’s risk assessment, for as per) (ISA-701)

Ans:

The auditor shall determine which of the matters communicated with those charged with governance are the key audit matters.

01.High estimation uncertainty.

02. Economic conditions that affected the auditor’s ability to obtain audit evidence, for example illiquid markets for certain financial instruments.

03. New or emerging accounting policies, for example entity-specific or industry-specific matters on which the engagement team consulted within the firm.

04. Changes in the entity’s strategy or business model that had a material effect on the financial statements.

Question-(15) (ISA-560) (Subsewuent Events)

What are the audit procedures When, after the date of the auditor’s report but before the date the financial Statements are issued, the auditor becomes aware of a fact which may materially affect the financial statements.

Ans:

The auditor should consider

Whether the financial statements need amendment, should discuss the

Matter with management, and should take the action appropriate in the Circumstances.

Question-(16) (ISA-560) (Subsequent Events)

What are the audit procedures when management does not amend the financial statements in Circumstances?

Ans:

When management does not amend the financial statements in Circumstances where the auditor believes they need to be amended and the auditor’s report has not been released to the entity, the auditor should express a qualified opinion or an adverse opinion, as described in ISA 701, “Modifications to the Independent Auditor’s Report.

Question-(17) (ISA-560) (Subsequent Events)

Facts discovered after the Financial Statements have been issued

Ans:

After the financial statements have been issued, the auditor has no obligation to

Make any inquiry regarding such financial statements. When, after the financial statements have been issued, the auditor becomes Aware of a fact which existed at the date of the auditor’s report and which, If known at that date, may have caused the auditor to modify the auditor’s Report, the auditor should consider whether the financial statements need

Revision, should discuss the matter with management, and should take the

Action appropriate in the circumstances

Question-(18) (ISA-570) (Going concern)

Audit Procedures when events or Conditions have been identified regarding Going concern

Ans:

If events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern, the auditor shall obtain sufficient appropriate audit evidence to determine whether or not a material uncertainty exists related to events or conditions that may cast

Significant doubt on the entity’s ability to continue as a going concern.

Under this situation audit procedures includes-

(a) Where management has not yet performed an assessment of the entity’s ability to continue as a going concern, requesting management to make its assessment.

 

(b) Evaluating management’s plans for future actions in relation to its going concern assessment, whether the outcome of these plans is likely to improve the situation and whether management’s plans are feasible in the circumstances. (Ref: Para. A17)

(c) Where the entity has prepared a cash flow forecast, and analysis of the forecast is significant factor in considering the future outcome of events or conditions in the evaluation of management’s plans for future actions: (Ref: Para. A18–A19)

(i) Evaluating the reliability of the underlying data generated to prepare the forecast; and

(ii) Determining whether there is adequate support for the assumptions underlying the forecast.

(d) Considering whether any additional facts or information have become available since the date on which management made its assessment.

(e) Requesting written representations from management and, where appropriate, those charged with governance, regarding their plans for future actions and the feasibility of these plans. (Ref: Para. A20)

Question-(19) (ISA-570) (Going concern)

Audit opinion procedures as per going concern assumption

Ans:

01. If adequate disclosure is made in the financial statements, the auditor should express an unqualified opinion but modified the auditor report by adding an emphasis of matter paragraph that highlights the existence of a material uncertainty relating to the event or condition that may cast significant doubt on the entities ability to continue as a going concern.

02. If adequate disclosure is not made in the financial statements, the auditor should express a qualified or adverse opinion, as appropriate (“ISA-701, modification to the in depended auditor report”)

Question-(20) (ISA-265) (Internal control)

Audit procedures of Whether Deficiencies in Internal Control Have Been

Identified (Ref: Para. 7)

Ans:

In determining whether the auditor has identified one or more deficiencies in

Internal control, the auditor may discuss the relevant facts and circumstances of

The auditor’s findings with the appropriate level of management. This discussion provides an opportunity for the auditor to alert management on a timely basis to the existence of deficiencies of which management may not have been previously aware. The level of management with whom it is appropriate to discuss the findings is one that is familiar with the internal control area concerned and that has the authority to take remedial action on any identified deficiencies in internal control. In some circumstances, it may not be appropriate for the auditor to discuss the auditor’s findings directly with management, for example, if the findings appear to call management’s integrity or competence into question (see paragraph A20).

Question-(21) (ISA-710) (“Comparative Information Corresponding Figures)

 Audit procedures when auditor concludes that a material misstatement exists that affect the prior period financial statements.

Ans:

If the auditor concludes that a material misstatement exists that affects the prior

Period financial statements on which the predecessor auditor had previously reported without modification, the auditor shall communicate the misstatement

With the appropriate level of management and, unless all of those charged with

Governance is involved in managing the entity, 6 those charged with governance

And request that the predecessor auditor be informed. If the prior period financial

Statements are amended, and the predecessor auditor agrees to issue a new auditor’s report on the amended financial statements of the prior period, the auditor shall report only on the current period. (Ref: Para. A11)

Question-(22) (ISA-710) (“Comparative Information Corresponding Figures”)

 Audit procedures when Prior Period Financial Statements Not Audited

Ans:

If the prior period financial statements were not audited, the auditor shall state in

an Other Matter paragraph that the comparative financial statements are unaudited. Such a statement does not, however, relieve the auditor of the requirement to obtain sufficient appropriate audit evidence that the opening balances do not contain misstatements that materially affect the current period’s financial statements

Question-(23) (ISA-705) (Modified audit opinion)

Circumstances When a Modification to the Auditor’s Opinion Is Required

Ans:

The auditor shall modify the opinion in the auditor’s report when:

(a) The auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or (Ref: Para. A2–A7)

(b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement. (Ref: Para. A8–A12)

Question-(24) (ISA-705) (Modified audit opinion)

Determining the Type of Modification to the Auditor’s Opinion

Ans:

Qualified Opinion

The auditor shall express a qualified opinion when:

(a) The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; or

(b) The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.

Adverse Opinion

The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.

Disclaimer of Opinion

 The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

The auditor shall disclaim an opinion when, in extremely rare circumstances involving multiple uncertainties, the auditor concludes that, notwithstanding having obtained sufficient appropriate audit evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the financial statements due to the potential interaction of the uncertainties and their possible cumulative effect on the financial statements