audit risk
Evaluating the sufficiency of audit evidence
Evaluating management’s integrity and judgment
Arriving at conclusions
(AU-C 200.A27)
As can be seen from the above list, professional judgment is exercised throughout the audit.
Professional Skepticism
The auditor should also exercise professional skepticism, that is, an attitude that includes a questioning mind and a critical assessment of audit evidence.
In practice, this means that auditors should be alert for:
Contradictory evidence,
Indications of fraud,
Unusual circumstances and those that suggest the need for additional audit procedures,
Evidence that calls into question the reliability of documents and responses to inquiries,
The possibility of collusion when performing the audit, and
How management may override controls in a way that would make the fraud particularly difficult to detect.
(AU-C 200.A22–A.23)
However, the auditor is not an insurer, and the audit report does not constitute a guarantee. It is based on reasonable assurance. Thus, it is possible that an audit conducted in accordance with GAAS may not detect a material misstatement.
Sufficient Appropriate Audit Evidence and Audit Risk
In order to form an opinion, the auditor must obtain reasonable assurance. The auditor obtains reasonable assurance by obtaining sufficient appropriate audit evidence to reduce audit risk to an acceptably low level to draw a reasonable conclusion. (AU-C 200.19)
COMPLYING WITH GAAS
Auditors must comply with and understand relevant AU-C sections, that is, those that are in effect and address the circumstances of the audit. (AU-C 200.20 and .21) GAAS uses two categories of professional requirements to describe the degree of responsibility the standards impose on auditors.
1 Unconditional requirements. The auditor is required to comply with an unconditional requirement in all cases in which the circumstances exist to which the unconditional requirement applies. SASs use the word must to indicate an unconditional requirement.
2 Presumptively mandatory requirements. The auditor is also required to comply with a presumptively mandatory requirement in all circumstances where the presumptively mandatory requirement exists and applies. However, in rare circumstances, the auditor may depart from a presumptively mandatory requirement. The departure should only relate to a specific procedure when the auditors determine that the procedure would be ineffective in the specific circumstances. The auditors must document their justification for the departure and how the alternative procedures performed in the circumstances were sufficient to achieve the objectives of the presumptively mandatory requirement. GAAS use the word should to indicate a presumptively mandatory requirement.
(AU-C 200.25–.26)
The term should consider means that the consideration of the procedure or action is presumptively required, whereas carrying out the procedure or action is not.
AU-C Section 200 also clarifies that explanatory material is intended to explain the objective of the professional requirements, rather than imposing a professional requirement for the auditor to perform.
Gaas and the Gaas Hierarchy
The auditor is responsible for planning, conducting, and reporting the results of an audit according to GAAS.2 GAAS provide the standards for the auditors’ work in fulfilling their objectives. Each AU-C section contains objectives that provide a link between the requirements and the overall objectives of the auditors. Auditors should have sufficient knowledge of the AU-C sections to determine when they apply and should be prepared to justify departures from them.
Interpretive Publications
Interpretive publications are not auditing standards, but are recommendations, issued under the authority of the ASB, on how to apply GAAS in specific circumstances, including engagements for entities in specialized industries. Interpretive publications are not auditing standards. They consist of the following:
Auditing Interpretations of AU-C sections, listed in each chapter of this book that has a related Interpretation.
AICPA Audit and Accounting Guides and Statements of Position, listed in Appendix B of this book.
(AU-C 200.A81)
Auditors should consider interpretive publications that apply to their audits.
Other Auditing Publications
Other auditing publications, listed in Appendix C of this book, are not authoritative but may help auditors to understand and apply GAAS. An auditor should evaluate such guidance to determine whether it is both (1) relevant for a particular engagement and (2) appropriate for the particular situation. When evaluating whether the guidance is appropriate, the auditor should consider whether the publication is recognized as helpful in understanding and applying SASs, and whether the author is recognized as an auditing authority. AICPA auditing publications that have been reviewed by the AICPA Audit and Attest Standards staff are presumed to be appropriate. (AU-C 200.A82–.84)
Notes
1 1 See Definitions of Terms.
2 2 Generally accepted auditing standards are issued in the form of Statements on Auditing Standards and codified into AU-C sections in the AICPA’s Professional Standards.
2 AU-C 210 Terms of Engagement
Objectives of AU-C Section 210
