Title Super Important Questions - Sep 25 ✅

Super Important Questions S25 Compiled by Neeraj Arora and TEAM Standards on Auditing have been issued on wide spectrum of issues in the field of auditing including (but not limited to) overall objectives of independent auditor, audit documentation, planning an audit of financial statements, identifying and assessing risk of material misstatement, audit evidence, audit sampling, going concern and forming an opinion and reporting on financial statements. Some examples of Standards on Auditing are : ● SA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing ● SA 230 Audit Documentation ● SA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment ● SA 500 Audit Evidence ● SA 700 Forming an Opinion and Reporting on Financial Statements Examples of Standards on Review engagements are ● SRE 2400 (Revised) Engagements to Review Historical Financial Statements ● SRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity Q6. RST Ltd., a mid-sized trading company, recently faced challenges in securing a bank loan due to doubts about the reliability of its financial statements. The management realised the importance of having audited accounts to build confidence among lenders and other stakeholders. Elucidate the benefits and need of an audit. (MTP2, Jan 2025, 4 marks) Advantages of audit of Financial statements: ● Audited accounts provide high quality information. It gives confidence to users that information on which they are relying is qualitative and it is the outcome of an exercise carried out by following Auditing Standards recognized globally. ● In case of companies, shareholders may or may not be involved in daily affairs of the company. The FSs are prepared by management consisting of directors. As shareholders are owners of the company, they need an independent mechanism so that financial information is qualitative and reliable. Hence, their interest is safeguarded by an audit. ● An audit acts as a moral check on employees from committing frauds for the fear of being discovered by audit. ● Audited FSs are helpful to government authorities for determining tax liabilities. ● Audited FSs can be relied upon by lenders, bankers for making their credit decisions i.e. whether to lend or not to lend to a particular entity. ● An audit may also detect fraud or error or both. ● An audit reviews the existence and operations of various controls operating in any entity. Hence, it is useful at pointing out deficiencies. Q7. Kriti, a CA student, has joined articles in a reputed audit firm. She considers audit engagement to be an “assurance engagement”. Her understanding is that audit engagement is the only kind of assurance engagement in which a practitioner gives a written assurance report in appropriate form. However, her friend Somaya, does not agree with her. She is of the view that assurance engagements are not restricted to audit alone. Besides, Somaya also thinks that assurance engagements can also relate to matters other than historical financial information. Whose view appears to be correct? State with reasons. (RTP, Sep 2024, NA) ● Audit engagement is an assurance engagement. However, assurance engagements are not restricted to auditing alone. There are other assurance engagements too like review engagements, engagements providing assurance involving prospective financial information, engagements providing assurance on internal controls in an entity. ● Assurance engagements provide assurance to users. The difference is of degree. Whereas an audit provides reasonable assurance which is a high level of assurance, review provides lower level of Neeraj Arora | www.edu91.org 4 www. edu91. org