What is meant by Materiality and performance materiality

 01. What is meant by Materiality and performance materiality:

  Materiality: -

 The information is material if its omission or misstatement could influence the economic decisions of users taken on the Basis of the financial information. Materiality depends on the size and Nature of the item, judged in the particular circumstances of its misstatement. Disclosures:- Materiality should be considered by the auditor when determining the nature, timing and extent of audit procedures, and evaluating the effects of misstatements. Performance materiality:- Performance materiality is an amount less than the level of overall materiality, and is reduced in order to allow for the risk that there may be several smaller errors or omissions that have not been identified by the auditor. These smaller items could be material when aggregated, so the performance materiality level is set to accommodate them. Thus, performance materiality reduces the probability that the aggregate amount of uncorrected and undetected misstatements exceeds the materiality level for the financial statements as a whole. 

02. Performance Audit & Audit of Performance Performance Audit:- A performance audit is an independent assessment of an entity's operations to determine if specific programs or functions are working as intended to achieve stated goals. Performance audits are typically associated with government agencies at all levels as most government bodies receive federal funding. Benefits of Performance Audits Performance audits serve a fundamental purpose of government accountability. Through performance audits government entities are held to objective standards of executing the responsibilities that they are legally authorized and charged to carry out. 

03. Define Audit Evidence, according to IAS-330 how do you evaluate sufficiency and appropriateness of audit evidence? Audit Evidence: -(IAS-500) Audit evidence refers to information or data that use or collect by auditors as part of their audit works so that they could conclude their opinion on whether or not financial statements are prepared in all material respect and in accordance with the applicable financial reporting frameworks Sufficiency of Audit evidence Sufficiency is a measure of quantity of audit evidence Appropriateness of audit evidence Appropriateness is the measure of quality of audit evidence. The auditor should obtain sufficient appropriate audit evidence through the performance of compliance and substantive test procedure. It will enable him to draw reasonable conclusions there from on which he has to base his opinion on the financial information. 

04. Audit engagement / Audit engagement letter(IAS-210) An audit engagement is an agreement between a client and an independent third-party auditor to perform an audit of some element of the client’s business, such as accounting records, financial statements, internal controls, regulatory compliance, information systems, operational processes, etc. The engagement letter avoids misunderstanding between the auditor and the client with respect to the engagement. 

05. Terms or Matter of Audit Engagement Letter as per IAS-210 01. Objective of the audit of financial statements 02. Managements‟ responsibility for the preparation of financial statements. 03. Basis on which fees are computed and other billing arrangements. 04. Provision of accounting and other services such as taxation. 

06. What do you meant by going concern assumption?(IAS-570) The going concern concept is defined as the assumption that the enterprise will continue in operational existence in the foreseeable future. This means that the income statement and balance sheet assume no intention or necessity to liquidate If financial statements are not prepared on a going concern basis, that fact should disclosed, together with the reasons for such a treatment. When preparing financial statements, management must make an assessment of the enterprise's ability to continue as a going concern. The auditor will then consider management's assessment. Management should generally look ahead at least one year from the balance sheet date, in assessing the validity of the going concern basis, but there are circumstances in which it is appropriate to look further ahead. This depends on the nature of the business and the associated risks. In the absence of a clear note to the contrary, there is a presumption that the financial statements have been prepared on a going concern basis.

 07. Audit working papers Audit working papers refer to the documents that prepare by or use by auditors as part of their works. Those documents include the summary of the client’s nature of the business, business process flow, audit program, documents or information obtained from the client as well as audit testing documents. Audit working papers are sometimes referred to as audit documents that are a very imported part of audit works. These documents are evidence that supports auditors to make their conclusion on the financial statements. Example: Here is the example of audit working papers: • Audit documents on client nature of business • Audit documents of team meeting • Evidence of the planning process including audit programs and any changes thereto • Evidence of the auditor’s consideration of the work of internal audit and conclusions reached • Analyses of transactions and balances • Analyses of significant ratios and trends • Identified and assessed risks of material misstatements • A record of the nature, timing, extent, and results of audit procedures • Evidence that the work performed was supervised and reviewed • An indication as to who performed the audit procedures and when they were performed • Details of audit procedures applied regarding components whose financial statements are audited • Result of audit testing on depreciation expenses • Result of audit testing on salaries expenses 

 08. Objective / Important /purpose of audit working papers The working paper serves following purposes: 1. They represent the volume of work performed by the auditor and his staff, which helps in preparing the report. 2. They show the extent of adherence to accounting principles and auditing standards. 3. They are useful as evidence against the charge of negligence. 4. They act as guide for subsequent examinations. 5. They enable the auditor to know the weakness of the internal check system in operation as also the accounting system. 6. They assist the auditor in coordinating and organizing the work of audit clerks. 7. They assist in planning and performance of audit work. 08. IT provides guidance to the audit staff regards to the manner of checking the schedules. 09. The auditor is able to fix responsibility on the staff member who signs each schedule checked by him. Working papers should record: (a) planning information (b) the work done and when it was done (c ) results and conclusions 09. Contents of working papers (a) Information likely to be of continuing importance on recurring audits such as the organization’s constitutional documents and other information concerning the legal and organization structure of the entity. (b) Audit planning information and time budgets. (c ) Details of the internal control and accounting systems of the business including the auditor’s evaluation and assessment of risk. (d) Details of audit work carried out, including notes of errors, action taken and conclusions drawn, including work carried out by other auditors. (e) Supporting schedules to financial statements. (f) Audit conclusions including significant and unusual matters. (g) Copies of approved financial statements and auditor’s reports, letters of representation, engagement letters, letters of weakness. Audit working papers are usually filed in two separate files: (a) Permanent files (b) Current file 10. What is Assurance engagement:? - Assurance engagement is an engagement performed by a practitioner to enable himself to express an opinion about the measurement of subject matter against a criterion. 11. Kinds of Assurance Engagement There are two common levels of assurance engagements that audit firms normally offer and provide. 01. Limited assurance engagement: - A limited assurance engagement is an assurance engagement in which the practitioner collects less evidence than for a reasonable assurance engagement but sufficient for a negative form of expression of the practitioner’s conclusion. The practitioner achieves this ordinarily by performing different or fewer tests than those required for reasonable assurance or using smaller sample sizes for the tests performed. 02.Reasonable assurance: - For a reasonable assurance engagement the practitioner needs to reduce the assurance engagement risk (the risk that an inappropriate conclusion is expressed when the information on the subject matter is materially misstated) to an acceptably low level as the basis for a positive form of expression of the practitioner’s conclusion. Such risk is never reduced to nil and therefore, there can never be absolute assurance. For example, An audit on financial statements is an example of the reasonable assurance engagement. Auditors will express their opinion based on the result of their examination. Those opinions will be based on a positive form. 12. The elements of an assurance engagement There are 5 elements of an assurance engagement: (i)the three parties involved: • the practitioner (i.e. the reviewer of the information); • the intended users (of the information); and • the responsible party (i.e. the preparer of the information). (ii) the subject matter under scrutiny; (iii)suitable criteria against which to judge the reliability and accuracy of the subject matter (e.g. IFRS); (iv)sufficient appropriate evidence to substantiate an opinion; and (v) a written report in an appropriate form. 13.. Objective of Assurance engagement? The main objective of an Assurance Engagement is to let the professional and independent audit firms perform their works and express their opinion based on the level of assurance that they are engaging in. 14. Audit sampling and Purpose of audit sampling (IAS-530) Audit Sampling Audit sampling is the application of audit procedures to less than 100% of the total population and all the items in the population have the same chance to be selected. Importance of Audit sample Audit sampling is really important because it doesn’t only help auditors ,to gather sufficient and appropriate audit evidence to draw the audit’s opinion, but also plays a very important part in the audit’s works’ efficiency and effectiveness. That mean auditor is not required to check 100% of object or items to let them express their opinion. 15. Kinds of Audit sampling 1. Statistical audit sampling Statistical audit sampling involves a sampling approach where the auditor utilizes statistical methods such as random sampling to select items to be verified. Random sampling is used when there are many items or transactions on record. For example, with statistical sampling, ten items are selected from the total population randomly. 2. Non-statistical audit sampling On the others hand, non-statistical audit sampling items are not chosen randomly. Instead, they are chosen based on the auditor’s judgment, In the example earlier, ten inventory transactions can be used to infer the opinion on all 100 transactions. In non-statistical audit sampling, the auditors may choose to select items based on criteria such as: • The value of items (e.g., items greater than $100,000) • Items with specific information (e.g., items related to a certain company) 16. Purpose of Audit Sampling No matter what kind of audit is being performed – internal, external, or government – audit sampling needs to be used so that auditors can complete their audits without wasting resources in checking every single item. The objectives of audit sampling are as follows: • Gather enough evidence to conclude an audit opinion • Reduce the number of resources used • Provide the basis for auditors to issue a conclusive audit opinion • Detect any errors or fraud that can occur • Prove that auditors have completed their audit fully in accordance with auditing standards • Used as a tool for investigating 17. Sampling risk and non-sampling risk Sampling risk:- Sampling risk relates to the possibility that a properly drawn sample may, by chance, not be representative of the population. It is the risk that the auditor’s conclusion about internal controls or the details of transactions and balances based on a sample may be different from the conclusion that would result from an examination of the entire population. Non-Sampling Risk:- Non – sampling risk refers to the component of audit risk that is not due to examining only a portion of the data. Sources of sampling risk include failing to recognize errors in documents and relying on erroneous information received from third parties. on sampling risk can never be mathematically measured. 18. What is Audit opinions, Describes the different type of Audit opinions Audit opinions:- The audit opinion is that part of the auditor's report to the members of an entity in which the auditor expresses an opinion on the extent to which the financial statements are materially misstated. The fact that it is an opinion, and not a certification Different type of Audit opinions:- 01. An unqualified audit opinion This opinion arises where the auditor concludes that: (i) the financial statements have been prepared using appropriate accounting policies which have been consistently applied. (ii) The financial statement have been prepared in accordance with relevant legislation, regulations or applicable financial reporting framework, and (iii) there is adequate disclosure of all information relevant to the proper understanding of the financial statements. 02. Qualified Opinions A qualified opinion is issued when either of the following circumstances exist: 01. There is a limitation on the scope of the auditor’s examination, or The auditor disagrees with the treatment or disclosure of a matter in the financial statements, and in either case 02. In the auditor’s judgment the effect of the matter is or may be material to the financial statements and therefore those financial statement may not or do not show a true and fair view presentation. 03. Adverse Opinion An adverse opinion is issued when the effect of a disagreement is so material or pervasive that the auditor concludes that the financial statements are seriously misleading. An adverse opinion is expressed by stating that the financial statements do not show a true and fair view presentation. 04. Disclaimer of opinion A disclaimer of opinion is expressed when the possible effect of a limitation on scope is so material or pervasive that the auditor have not been able to obtain sufficient evidence and accordingly is unable to express an opinion on the financial statements. 19. Baisc Elements of Auditor report According to ISA 700, the auditor’s report includes the following basic elements, ordinarily in the following layout: 01. Title: The title indicates the nature of the report. The title should be like “Auditor’s Report” or Branch Auditor’s Report”. 02. Addressee: The auditor’s report should address the person to whom it is meant to be forwarded. Generally, the audit report is submitted to the board of directors or stockholders of an entity. 03. Opening or Introductory Paragraph: The introductory paragraph should identify: 1. types of service performed (‘We have audited’). 2. financial statements audited. 3. dates of statements. 4. management’s responsibility for statements. 5. auditor’s responsibility for opinion. 04. Scope Paragraph: The scope paragraph specifies the work performed by the auditor. The scope paragraph should indicate that the auditor had planned and performed the audit to obtain reasonable assurance whether financial statements are free from material misstatement. Specifically, the scope paragraph describes the audit as including- 6. examining evidence on a test basis, 7. assessing accounting principles used and significant estimates made by management, 8. Evaluating the overall financial statement presentation. 05. Opinion Paragraph: The opinion paragraph of the report should state the auditor’s opinion as to whether the financial statements give a true and fair view in conformity with the financial reporting framework and comply with the statutory disclosure requirements. 06. Date of the report: The date of the report should be the date when the auditor has obtained sufficient appropriate evidence to support the opinion. It should not be earlier than the date when management approves the financial statements. 07. Place of the report: The town in which the audit report is signed should be indicated. 8. Auditor’s signature: The report should be signed the personal name of the auditor or in the name of an audit firm or both. 20. Audit documentation /purpose/Benefit of audit documentation (IAS-230) Audit documentation:- Audit documentation, also known as audit working paper, is the record of procedures auditors perform, relevant audit evidence obtained during their audit work and the conclusion they form based on the audit evidence gathered. Audit documentation could be stored in the form of paper, electronic or other types of media. It is important for auditors to have proper documentation of their audit work so that it can be used as evidence of the work done to support the audit opinion they form. It also assists audit team members for the whole audit process, starting from the planning stage until the end of the audit engagement. Purposes of Audit Documentation 1 It provides evidence of auditors’ basis for a conclusion about the achievement of the overall objective. 2 It provides evidence showing that audit work was properly planned and performed in accordance with ISAs and other legal and regulatory requirements. 3 It assists audit team members to plan and perform their audit work in the engagement. 4 It assists audit team members who are responsible for supervision to properly direct, supervise and review audit work, both hot and cold review. 5 It enables audit team members to be accountable for their audit tasks. 6 It allows the record of matters of continuing significance to be retained. 7 It enables the conduct of quality control reviews and inspections (both internal and external). 21. What is audit planning? and Importance of Audit planning(IAS-300) Meaning of Audit Planning Planning is required to complete the audit effectively within the specified time. Audit planning is a process of deciding in advance what is to be done, who is to do it, how it is to be done and when it is to be done by the auditor in order to have efficient and effective completion of work. Benefits (or) Advantages of Audit Planning An efficient and effective audit plan provides the following benefits: Accomplishment of Objectives: Audit plan ensures that it provides right means to accomplish audit objectives. Further it also ensures that appropriate attention is devoted to important areas of audit. Identification of Problems: A well drawn and established audit plan helps in identifying potential problems. Timely Completion of Work: It ensures that work is completed properly within the specified time and no important area is left out. It also ensures that all important areas of management receive attention. Facilitates Coordination: It facilitates coordination of the audit work done by auditors and other experts. Better Audit Work: It helps in improving the quality of audit work and provides promptness and perfection in audit performance. 22. Management representation, is it Reduce at the risk and liability of Auditors? Management representation is a letter issued by a client to the auditor in writing as part of audit evidences.. It is used to let the client's management declare in writing that the financial statements and other presentations to the auditor are sufficient and appropriate and without omission of material facts to the financial statements, to the best of the management's knowledge. Is it Reduce at the risk and liability of Auditors? The possibility of misunderstandings between the auditor and management is reduced when oral representations are confirmed by management in writing. 23. What is. Fraud? And Necessity steps to protect fraud . Definition: Fraud is the intentional activity to gain personal benefit directly or indirectly illegally, against organization or entity policy. It is ultimately different from error and corruption. An elementary example of Fraud is that the accounting staff pays salary to fake employee’s account that creates by himself is also called fraud. In such a case, accounting staff is intentionally creating the name of the employee, and bank account order to make payment and then get a direct benefit from it. Necessity steps to protect fraud. 01.Employee Due Diligence This is the important point to do, and it normally does at the time of recruitment. The company has to set proper recruitment policies and procedures to ensure that all-important information about employees is obtained and the background is checked. Doing this company could minimize the risk of hiring an employee whose fraud was ever committed. 02. Mandatory Job Vacation This is one of the most recommended procedures that the company should have to manage fraud, especially for high-risk positions. 03 .Setting up Internal Audit or “Fraud Department” Setting up the internal audit department or fraud department is one type of fraud risk management by the Board of Directors. Now it is globally aware and accepted word wild as an effective strategy. 04. Build the Culture of Honesty and Integrity This is an important part of fraud risk management and is morally done by top management by showing a sense of honesty and integrity. Management should show honesty to its staff and then 05.Setting up Sound Strong Internal Control The company should set up sound string internal control, for example, segregation of duty, physical control. Segregation of duty; for example, one person should not control the whole process. One person responsible for purchasing, receiving goods, and paying suppliers, for example. The security camera should be set at the warehouse, cashiers, or the other sensitive’s place. 24. Types of Fraud Types of Fraud Fraud is classed into two main different types, 01.Misappropriation of Company Assets Misappropriation of company assets is a kind of fraud that is mostly committed at the staff level by stealing a company’s assets, for example, cash, inventories, care, or other assets for personal use or sale. Such kind of fraud could be prevented by setting up strong internal control, segregation of duty or job rotation. Creating the fake customer’s name or account in order to get the commission, creating the fake suppliers’ accounts or making payment to the fake supplier is also the common type of misappropriation of assets. We will talk about its prevention in detail in this article. 02.Fraud over Financial Reporting Fraud over the Financial Statements is done by management manipulating the financial figure in the financial statements. This type of fraud is committed at the management level. There are many ways that management could manipulate the figure in the Financial Statements. For example, management could improve the Net Profit for the year by decreasing depreciation expenses through depreciation policies. Normally, deprecation policies are decided by the management and yes they could affect the net profit by this. 25. Audit risk and auditor response of each risk describe Audit risk Audit risk is ‘the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. Kinds of Audit risks There are three types of Audits risks are describes bellow 01. Inherent risk, 02. Control risk and 03. Detection risk. 01.Detection risks This means that the auditor fails to detect the misstatements and errors in the company’s financial statement, and as a result, they issue a wrong opinion on those statements. As an instance, the auditors failed to determine the continual misreporting of the company’s financial statements. Sources of detection risks: • The auditors did not choose the correct sample size (Also see Introduction to Audit Sampling) • The auditors did not understand the complexity and the business conducted by the company • The auditors did not engage and communicate well with the company’s management. • The auditors did not plan the audit well and have chosen inappropriate audit procedures (Also see Audit Procedures for Small Businesses) 02.Control risks This type of risks refers to the risks of misstatements and errors in the company’s financial statements as the company fails to manage its internal controls well. As an instance, the management was unable to control and prevent unauthorized staff from carrying out those transactions in the first place. Sources of control risks: • The management failed to make sure that there is proper segregation of duties between the staff who has their responsibility in financial reporting • The management was unable to inculcate efficient and proper internal controls in financial reporting • The management did not implement the culture of appropriate filing and documentation (Also see Introduction to Audit Documentation) in the company 03.Inherent risks This is the risks that both the management and the company could not prevent due to some uncontrollable factors, and the auditors did not find them in the audit. For example, the transactions that involve high-value cash amount will bring higher inherent risks Sources of inherent risks • The auditors are unable to identify the risk as the transactions require a high level of judgement • There is a high possibility for a company that has misreported some of the data to repeat the mistakes again • The industry that the company is in will experience technological developments frequently, and this makes the company face the risks of technology obsolescence • The business transactions of the company are complicated, and they involve derivative instruments 26. Audit Sampling and necessity of Audit sampling as per IAS-530 No matter what kind of audit is being performed – internal, external, or government – audit sampling needs to be used so that auditors can complete their audits without wasting resources in checking every single item. The objectives of audit sampling are as follows: • Gather enough evidence to conclude an audit opinion • Reduce the number of resources used • Provide the basis for auditors to issue a conclusive audit opinion • Detect any errors or fraud that can occur • Prove that auditors have completed their audit fully in accordance with auditing standards • Used as a tool for investigating 27. Understanding Reporting Period, Cut-off, and Subsequent Events The typical reporting period for a company is 12 months. However, a reporting period does not need to match the calendar year from January 1 to December 31. Typically, companies will choose a year-end corresponding to a period of low activity. For example, retailers usually follow a year-end at the end of January when inventory is low (post-holiday season). The cut-off date refers to the end of the reporting period and the start of the new reporting period. It is important in accrual accounting because cash cycles may not be complete. Therefore, it is necessary to understand which events will be during the current reporting period and which events will be recorded in the next reporting period. Transactions and events are recognized up to the cut-off date. Between the period of the cut-off date and the authorization of financial statements issuance is the subsequent events period. Depending on the type of subsequent event, it may or may not require an adjustment to the financial statements. Transactions and events that change the measurement of transactions before the cut-off date are recognized. Example After the cut-off period (after the company’s year-end) and before the issuance of financial statements, Company A’s major client unexpectedly goes bankrupt. It is determined that the company will only get 10% of its outstanding accounts receivable from the major client. The event will require an adjustment to the financial statements of Company A. 28. Procedures to obtain audit evidence: Procedures to obtain audit evidence: There are many procedures that auditors use to obtain audit evidence to support their conclusion. Such procedures include audit inquiry, audit observation, audit inspection, analytical procedure, audit recalculation, audit confirmation, as well as re-performance. • Audit inquiry: Auditor inquires management on certain business transactions or events for the purpose of obtaining an understanding or to confirm some related assertion. • Audit observation: Auditor observes the way how certain controls related to financial reporting perform. • Audit Inspection: Auditor inspect on certain documents or evidence that related to financial transaction or event. • Analytical Procedure: Analytical procedure is normally used by the auditor to assess the transactions or amounts in the financial statements through other financial and non-financial data. • Recalculation: The auditor sometimes recalculates some depreciation expenses that prepare by management. • Re performance: The auditor sometimes re-performs bank reconciliation that prepares by the client 29. Subsequent Event & kinds of subsequent events. . What is a Subsequent Event? Subsequent events are events that occur after a company’s year-end period but before the release of the financial statements. In other words, subsequent events are events that happen between the cut-off date and the date in which the company issues its financial statements. Depending on the situation, subsequent events may require disclosure in a company’s financial statements. There are two types of subsequent events: 1. Adjusting events It is an event that provides additional information about pre- existing conditions that existed on the balance sheet date. 2. Non-adjusting events It is an event that provides new information about a condition that did not exist on the balance sheet date. Accounting for Subsequent Events For subsequent events that provide additional information about per-existing conditions that existed on the balance sheet date, the financial statements are adjusted to reflect this additional information. For example: • If the company faced a lawsuit before the balance sheet date and the lawsuit is settled during the subsequent-events period, the company would adjust the contingent loss amount to match the actual settlement loss. • Assume that, due to new technology, there is a significant reduction in the market price of Company A’s inventory. This will require an adjustment to the financial statements, with inventory valued at the lower of cost or market value. For subsequent events that are new events and thus do not provide additional information about pre-existing conditions that existed on the balance sheet, these events are not recognized in the financial statements. However, a subsequent event footnote disclosure should be made so that investors know the event occurred. For example: • A labor strike that could potentially threaten the company into bankruptcy should be disclosed in the financial statements. • A fire in the company’s warehouse that destroys inventory and assets is not recognized (but disclosure is required) because the conditions did not exist prior to the balance sheet date. 30. Date and signature of the unqualified audit report Date and signature of the auditor’s report The auditor should not express an opinion on financial statements until those financial statements and other financial information contained in a report of which the audited financial statements form part, have been approved by the directors and the auditor have considered all necessary available evidence. The date of an auditor’s report on a client’s financial statements is the date on which the auditor signed the report expressing an opinion on those statements. The auditor should sign the audit report after completion of all procedures necessary to form an opinion on the financial statements including a review of post balance sheet events. Example of an unqualified audit report Deloitte and Touche Kenilworth Gardens 1 Kenilworth Road Highlands Harare Report of the Independent Auditors To the members of Africa Banking Corporation Limited We have audited the accompanying balance sheet, income statement, and cash flow statements of Africa Banking Corporation Limited as of 31 December 2005. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatements. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. In our opinion, the financial statements give a true and fair view of the financial position of the company as at 31 December 2005 and of the results of its operations and its cash flows for the year then ended and comply with the Banking Act. Deloitte and Touche 28 February 2006 31. Limitation of audit scope Limitation of audit scope Where there has been a limitation on the scope of the auditor’s work that prevents him from obtaining sufficient evidence to express an unqualified opinion: (a) the auditor’s report should include a description of the factors leading to the limitation on the scope. (b) the auditor should issue a disclaimer of opinion when the possible effect of a limitation on scope is so material or pervasive that they are unable to express an opinion on the financial statements. (c) a qualified opinion should be issued when the effect of the limitation is not so material or pervasive as to require a disclaimer and the wording of the opinion should indicate that it is qualified as to the possible adjustments to the financial statements that might have been determined to be necessary had the limitation not existed. A description of factors leading to a limitation enables the reader to understand the reasons for the limitation. (iv) Disagreement on an accounting treatment or disclosure Where the auditor disagrees with the accounting treatment or disclosure of a matter in the financial statements and in the auditor’s opinion the effect of that disagreement is material to the financial statements, the auditor should include in the opinion section of his report, a description of all substantive factors giving rise to the disagreement and their implications for the financial statements. When the auditor concludes that the effect of the matter giving rise to disagreement is so material or pervasive that the financial statements are seriously misleading, they should issue an 32. External Audit Report. The final audit report should normally be drafted by the audit manager and signed by the audit partner. Auditors‟ reports on financial statements should contain a clear expression of an opinion, based on the review and assessment of the conclusions drawn from the evidence obtained in the course of the audit. Contents of the auditor’s report on financial statements. The auditor’s report should contain the following matters: A title identifying the person or persons to whom the report is addressed. An introductory paragraph identifying the financial statements audited. Separate sections, appropriately dealing with: respective responsibilities of directors and auditors. the basis of the auditor's opinion and the auditor's opinion on the financial statements. The date of the auditor's report. The term independent auditors should be used in the title of the audit report to better distinguish it fro many other reports prepared by officers of the company. 33. Statement of responsibilities and basis of opinion Auditors should distinguish between their responsibilities and those of the directors by including the following in their report: (i) a statement that the financial statements are a responsibility of the directors. (ii) a reference to a description of those responsibilities when set out in the financial statements. (iii) a statement that the auditor’s responsibility is to express an opinion on the financial statements. Where the financial statements or accompanying information do not include an adequate description of directors‟ responsibilities, the auditor’s report should include a description of those responsibilities. The directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing financial statements, the directors are required to : (a) Select suitable accounting policies and then apply them consistently. (b) Make judgments and estimates that are reasonable and prudent. (c) State whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the financial statements. (d) Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time, the financial position of the company to enable them to ensure that the financial statements comply with the Companies Act and relevant legislation. Directors are responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Basis of 34. Computer Assisted Audit Techniques (CAATs) ,Advantages of Computer Assisted Audit Techniques Computer Assisted Audit Techniques (CAATs) Computer Assisted Audit Techniques (CAATs) is the tool which is used by the auditors. This tool facilitates them to make search from the irregularities from the given data. With the help of this tool, the internal accounting department of any firm will be able to provide more analytical results. These tools are used throughout every business environment and also in the industry sectors too. With the help of Computer Assisted Audit Techniques, more forensic accounting with more analysis can be done. It’s really a helpful tool that helps the firm auditor to work in an efficient and productive manner Advantages of Computer Assisted Audit Techniques (a) Reduced level of audit risk. (b) Greater independence from the auditee. (c) Broader and more consistent audit coverage. (d) Enhanced sampling. (e) Improved exception identification. (f) Greater opportunity for quantification of internal control weaknesses. (g) Faster availability of information. (h) Cost saving over time. Disadvantages of Computer Assisted Audit Techniques. (a) Specialized knowledge and skills are required. (b) Possible disruption of the entity's computer operations while the auditors use the computer files and programs. (c) Substantial set up costs in using audit software. (d) Audit software may not be suitable for use on mini computers. Electronic Data Interchange(EDI) Electronic data interchange enables entities to transmit standard business documents over data communication channels. Examples of documents usually exchanged include sales invoices, purchase orders, payment advices. The exchange of documents can take place between different systems and between different hardware and software configurations. Given the advantages of EDI more and more businesses are now using EDI. However this places more problems to the audit because electronic transactions take more time to verify. 35. Audit conclusions and reporting On completion of the detailed audit testing the auditor must now consider whether or not the organization is a going concern. If it is considered that the organization is not a going concern or that there is some doubt then the auditor needs to discuss the issues with the organization's management to determine how the financial statements are best prepared. The auditor should report going concern problems and if material the auditor may qualify the audit report. 

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