The international standards on auditing

1. The international standards on auditing

3. Risk Based Audit

4. RISK BASED AUDIT

9. Making an Estimate of Materiality

10. Use of Materiality in the Audit

11. Risk Assessment Procedures

12. Inherent, Control and Detection Risk Internal Controls Financial Statements Accounting Information System Events, Transactions Substantive Procedures INHERENT RISK The likelihood that, in the absence of internal controls, an error or fraud will enter the accounting information system CONTROL RISK The likelihood that an error or fraud will not get caught by the client’s internal controls. DETECTION RISK The likelihood that an error or fraud will not be caught by the auditor’s procedures. AUDIT RISK The likelihood that an error or fraud will occur, and not get caught by either the internal controls or auditor’s procedures.

13. Detection Risk and the Nature, Timing, and Extent of Audit Procedures

15. Developing Audit Strategy

16. Trade-off Between Testing of Controls and Substantive Testing More Efficient More Effective Substantive Testing Substantive Testing Testing of Controls Interim Year-end

17. Financial Statement Assertions

18. Assessing the RMM

19. Responding to the Assessed RMM

20. Subsequent EventsISA 560

21. Going ConcernISA 570

22. Going Concern Assessment

23. Going Concern Assessment- Effect on Audit Report

24. Forming an Audit ReportISA 700

25. Emphasis of Matter and Other Matter Paragraphs ISA 706

26. Objective of additional paragraph • To draw the readers’ attention to • A matter included in the financial statements that is essential to users’ understanding of the financial statements; or • Other matter, not included in the financial statements, that is relevant to users’ understanding of the audit conducted

27. Circumstances that require Emphasis of Matter Paragraph • Uncertainty relating to the future outcome of exceptional litigation or regulatory action • Early application of new accounting standard • A major catastrophe with significant effect on the entity’s financial position • Going concern uncertainty (ISA 570) • Financial statements prepared using Special Purpose Financial Reporting Frameworks (ISA 800)

28. Circumstances that require Other Matter Paragraph • Reporting on comparatives (ISA 710) • Material inconsistency exists between other information and the audited financial statements (ISA720) • Restriction on distribution or use of the auditor’s report (ISA 800, 805 and 810) • Reporting on financial statements prepared using more than one financial reporting frameworks

29. Audits of Group Financial Statements ISA 600

30. ISA 600 Special Consideration – Audit of Group Financial Statements (Including the Work of Component Auditors) • ISA 600 apply to group audits and deals with special consideration that apply to group audits, in particular those that involve component auditor. • The group engagement partner is responsible for the direction, supervision, and performance of the group audit engagement. • The auditor’s report on the group financial statements shall not refer to a component auditor.

31. THE accounting standards

32. Financial Reporting Framework IFRS for SMEs Full IFRS • Applies to all SME’s • Basically, Historical costs. Option to use fair value if it will not entail undue cost or effort • Applies to Publicly Accountable Entities and Economically Significant Entities • Geared towards fair value measurement

33. Borrowing Costs Section 25 IAS 23 • All borrowing costs are recognized as expense when incurred • Borrowing costs incurred in connection with the construction or production of a qualifying asset are capitalized as part of the cost of the asset

34. Investment Property Section 16 IAS 40 • Investment property shall be measured at fair value through profit or loss if the fair value can be measured reliably without undue cost or effort. Otherwise, the investment property shall be accounted for as property, plant and equipment using the cost-depreciation-impairment model. • Investment property may be accounted for using: • Fair value model; or • Cost-depreciation- impairment model • Full IFRS requires disclosure of the fair value of investment property.

35. Property, plant and equipment Section 17 IAS 16 • Scope of Section 17 includes: • Investment property whose fair value can not be measured reliably without undue costs or effort; and • Non-current assets held for sale • Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. • Revaluation is not permitted • IAS 16 applies only to Property, plant and equipment • Investment property is covered by IAS 40 • Non-current asset held for sale is covered by IFRS 5 • Property, plant and equipment can be measured using: • Cost-depreciation-impairment model; or • Revaluation model

36. Agriculture Section 34 IAS 41 • Biological assets shall be measured at fair value less cost to sell if the fair value is readily determinable without undue costs or effort • Otherwise, biological assets shall be measured at cost less accumulated depreciation and accumulated impairment losses • Biological assets are measured at fair value less cost to sell • There is a presumption that fair value can be measured reliably for biological assets

37. Investment in Joint Ventures Section 15 IAS 31 • Investment in joint ventures shall be accounted for using: • Equity model; • Fair value model; or • Cost model • Proportionate consolidation is not permitted • Investment in joint ventures must be accounted for using the • Equity method; or • Proportionate consolidation

38. Employee Benefits Section 28 IAS 19 • All past service costs are recognized immediately in profit or loss. • Actuarial gains or losses are recognized immediately in either profit or loss or other comprehensive income. • Unvested past service costs are amortized on a straight-line basis over the vesting period. • Actuarial gains or losses may be • Deferred and amortized using corridor approach; or • Recognized immediately in either profit or loss or other comprehensive income

39. Leases Section 20 IAS 17 • Lease payments under operating leases shall be recognized as income/expense on a straight-line basis unless • Another basis is more representative of the timing of the benefits obtained by the user of the asset; or • the payments are structured to increase in line with expected general inflation. • Lease payments under operating leases shall be recognized as income/expense on a straight-line basis unless • Another basis is more representative of the timing of the benefits obtained by the user of the asset

40. Foreign Currency Translation Section 30 IAS 21 • When a foreign operation is disposed of, any cumulative amount in equity is recognised in comprehensive income – not in profit or loss • When a foreign operation is disposed of, any cumulative amount in equity is recognised in profit or loss

41. Basic Financial Instruments Section 11 IAS 39 • Debt instruments are measured at amortised cost • Debt instruments that are classified as current are measured at the undiscounted amount • Investments in non-convertible preference shares and non-puttable ordinary or preference shares are measured at fair value through profit or loss • Financial instruments are classified as trading securities, available for sale, loans and receivables or held to maturity depending on the intention of management.

42. Complete Set of Financial Statements IFRS for SMEs Full IFRS • Complete set of FS includes: • Statement of Financial Position • Statement of Income • Statement of Cash Flows • Statement of Changes in Equity • Statement of Comprehensive Income • Notes to Financial Statements • Statement of income and retained earnings may be presented in place of Statement of changes in equity and Statement of comprehensive income • Complete set of FS includes: • Statement of Financial Position • Statement of Income • Statement of Cash Flows • Statement of Changes in Equity • Statement of Comprehensive income • Notes to Financial Statements

43. Thank You!