HKSA 200 - Overall Objectives of the Independent Auditor (Condensed)
| Section | Key Concept | Brief Description |
|---|---|---|
| Scope of HKSA 200 | Overall responsibilities of the independent auditor | Sets out objectives, nature, and scope of an audit in accordance with HKSAs. |
| An Audit of Financial Statements | Purpose and basis of audit opinion | Enhances user confidence; auditor obtains reasonable assurance on financial statements. |
| Overall Objectives of the Auditor | Reasonable assurance and reporting | Obtain reasonable assurance on financial statements and report findings. |
| Definitions | Key terms | Defines audit evidence, audit risk, professional judgment, skepticism, etc. |
| Ethical Requirements | Compliance with ethics and independence | Auditor must comply with relevant ethical requirements, including independence. |
| Professional Skepticism and Judgment | Attitude and decision-making | Maintain questioning mind and apply training/knowledge in audit decisions. |
| Sufficient Appropriate Audit Evidence | Quantity and quality of evidence | Obtain sufficient appropriate evidence to reduce audit risk to an acceptably low level. |
| Conduct of an Audit in Accordance with HKSAs | Compliance and objectives | Comply with all relevant HKSAs; use objectives to plan and perform audit. |
Scope and Purpose of HKSA 200
Overall Responsibilities
HKSA 200 deals with the independent auditor's overall responsibilities when conducting an audit of financial statements in accordance with HKSAs. It sets out the overall objectives of the independent auditor and explains the nature and scope of an audit designed to meet those objectives.
Authority and Structure
The standard explains the scope, authority, and structure of HKSAs, including requirements establishing general responsibilities applicable in all audits, such as the obligation to comply with HKSAs.
An Audit of Financial Statements
Purpose of an Audit
The purpose is to enhance the degree of confidence of intended users in the financial statements. This is achieved by the expression of an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
Reasonable Assurance
HKSAs require the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Reasonable assurance is a high level of assurance but not absolute, due to inherent limitations of an audit.
Materiality
Materiality is applied in planning, performing, and evaluating the effect of misstatements. Misstatements are material if they could reasonably be expected to influence economic decisions of users.
Overall Objectives of the Auditor
Two Main Objectives
In conducting an audit of financial statements, the overall objectives of the auditor are:
- To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion.
- To report on the financial statements and communicate as required by the HKSAs, in accordance with the auditor's findings.
Key Definitions
Important Terms
| Term | Definition |
|---|---|
| Applicable financial reporting framework | The financial reporting framework adopted by management in preparing the financial statements, acceptable in view of the nature of the entity and objective of the financial statements, or required by law or regulation. |
| Audit evidence | Information used by the auditor in arriving at conclusions on which the auditor's opinion is based, including information from accounting records and other sources. |
| Audit risk | The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. It is a function of risks of material misstatement and detection risk. |
| Professional skepticism | An attitude that includes a questioning mind, being alert to conditions indicating possible misstatement due to error or fraud, and a critical assessment of audit evidence. |
| Reasonable assurance | A high, but not absolute, level of assurance in the context of an audit of financial statements. |
| Misstatement | A difference between the amount, classification, presentation, or disclosure of a reported financial statement item and what is required by the applicable financial reporting framework. |
Fair Presentation vs Compliance Framework
Fair Presentation Framework: Requires compliance with the framework and acknowledges that additional disclosures or departures may be necessary for fair presentation.
Compliance Framework: Requires compliance with the framework but does not contain the above acknowledgements.
Ethical Requirements and Professional Skepticism
Ethical Requirements
The auditor shall comply with relevant ethical requirements, including those related to independence, relating to financial statement audit engagements. The HKICPA's Code of Ethics establishes fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.
Professional Skepticism
The auditor shall plan and perform an audit with professional skepticism, recognizing that circumstances may exist that cause the financial statements to be materially misstated. This includes being alert to:
- Audit evidence that contradicts other audit evidence
- Information questioning the reliability of documents and responses
- Conditions indicating possible fraud
- Circumstances suggesting need for additional audit procedures
Professional skepticism is necessary to reduce risks of overlooking unusual circumstances, overgeneralizing, or using inappropriate assumptions.
Professional Judgment and Audit Evidence
Professional Judgment
The auditor shall exercise professional judgment in planning and performing an audit. Professional judgment is essential for decisions about materiality, audit risk, nature/timing/extent of audit procedures, evaluating evidence, and drawing conclusions.
Sufficient Appropriate Audit Evidence
To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
| Concept | Description |
|---|---|
| Sufficiency | Measure of quantity of audit evidence; affected by assessment of risks of material misstatement and quality of evidence. |
| Appropriateness | Measure of quality of audit evidence; its relevance and reliability in supporting conclusions. |
Obtaining more audit evidence may not compensate for poor quality. The reliability of evidence is influenced by its source and nature.
Audit Risk and Its Components
Audit Risk
Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated. It is a function of risks of material misstatement and detection risk.
Risks of Material Misstatement
These may exist at two levels:
- Overall financial statement level: Risks that relate pervasively to the financial statements as a whole.
- Assertion level: Risks for classes of transactions, account balances, and disclosures.
Risks of material misstatement consist of:
- Inherent risk: Susceptibility of an assertion to misstatement before consideration of controls.
- Control risk: Risk that a misstatement will not be prevented or detected by the entity's controls.
Detection Risk
Detection risk is the risk that the auditor's procedures will not detect a material misstatement. It bears an inverse relationship to the assessed risks of material misstatement. Detection risk can only be reduced, not eliminated, due to inherent limitations of an audit.
Conduct of an Audit in Accordance with HKSAs
Complying with HKSAs
The auditor shall comply with all HKSAs relevant to the audit. An HKSA is relevant when it is in effect and the circumstances addressed exist. The auditor shall have an understanding of the entire text of an HKSA, including application material.
Objectives in Individual HKSAs
The auditor shall use the objectives stated in relevant HKSAs to determine whether additional audit procedures are necessary and to evaluate whether sufficient appropriate audit evidence has been obtained.
Departure from Requirements
In exceptional circumstances, the auditor may depart from a relevant requirement if the specific procedure would be ineffective. Alternative procedures must be performed to achieve the aim of the requirement.
Failure to Achieve an Objective
If an objective cannot be achieved, the auditor shall evaluate whether this prevents achieving the overall objectives, potentially requiring modification of the opinion or withdrawal from the engagement.
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