Sa 200

SA 200 - OVERALL OBJECTIVE OF THE INDEPENDENT AUDITOR & THE CONDUCT
OF AN AUDIT IN ACCORDANCE WITH SA
Overall objectives of independent Auditor

✓ 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 on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting framework; and
✓ To report on the financial statements, and communicate as required by the SAs, in
accordance with the auditor’s findings.
Definitions
Applicable financial reporting framework – The financial reporting framework adopted by

management and, where appropriate, those charged with governance in the preparation and
presentation of the financial statements that is acceptable in view of the nature of the entity
and the objective of the financial statements, or that is required by law or regulation.
Auditor – “Auditor” is used to refer to the person or persons conducting the audit, usually the
engagement partner or other members of the engagement team, or, as applicable, the firm
Misstatement – A difference between the amount, classification, presentation, or disclosure

of a reported financial statement item and the amount, classification, presentation, or
disclosure that is required for the item to be in accordance with the applicable financial
reporting framework. Misstatements can arise from error or fraud.
Reasonable assurance – In the context of an audit of financial statements, a high, but not
absolute, level of assurance
Risk of material misstatement – The risk that the financial statements are materially
misstated prior to audit
Professional judgment – The application of relevant training, knowledge and experience, within
the context provided by auditing, accounting and ethical standards, in making informed
decisions about the courses of action that are appropriate in the circumstances of the audit
engagement.
Professional judgment is essential to the proper conduct of an audit

Professional judgment is necessary in particular regarding decisions about:
✓ Materiality
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✓ audit risk.
✓ The NTE of audit procedures
✓ Evaluating whether SAAE has been obtained,
✓ The evaluation of management’s judgments in applying the entity’s applicable financial
reporting framework.
✓ The drawing of conclusions based on the audit evidence obtained.
Professional scepticism – An attitude that includes a questioning mind, being alert to

conditions which may indicate possible misstatement due to error or fraud, and a critical
assessment of audit evidence
Professional scepticism includes being alert to
➢ Audit evidence that contradicts other audit evidence obtained
➢ Information that brings into question the reliability of documents and responses
to inquiries to be used as audit evidence.
➢ Conditions that may indicate possible fraud.
➢ Circumstances that suggest the need for audit procedures in addition to those
required by the SAs.
Maintaining professional scepticism reduce the risks of:

✓ Overlooking unusual circumstances.
✓ Over generalising when drawing conclusions from audit observations.
✓ Using inappropriate assumptions in determining the nature, timing, and extent of
the audit procedures and evaluating the results thereof
Ethical Requirement relating to Audit of FS – {PICOC}
The auditor shall comply with relevant ethical requirements. Relevant ethical requirements
ordinarily comprise the Code of Ethics issued by the Institute of Chartered Accountants of
India
The Code establishes the following as the fundamental principles of professional ethics
relevant to the auditor when conducting an audit of financial statements
✓ Integrity - Integrity requires auditor to be straight forward and honest in all

professional and business relationships. It implies fair dealing and truthfulness. he shall
not be associated with reports, returns, communications or other information which he
believes contains a materially false or misleading statement
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✓ Objectivity - The principle of objectivity requires an auditor not to compromise
professional judgment because of bias, conflict of interest or undue influence of others.
✓ Professional competence and due care - It requires that auditor attains and maintains
professional knowledge and skill at the level required to render competent professional
service based on current technical and professional standards and legislation and also
to act diligently and in accordance with technical and professional standards.
✓ Confidentiality - Confidentiality principle requires an auditor to respect the
confidentiality of information acquired as a result of professional or business
relationships.
✓ Professional behaviour. - It requires an auditor to comply with relevant laws and
regulations and avoid any conduct that he knows or should know might discredit the
profession.
Conduct of Audit in accordance with

SA
The auditor shall comply with all SAs relevant to the audit. An SA is relevant to the audit when
the SA is in effect and the circumstances addressed by the SA exist.
The auditor shall not represent compliance with SAs in the auditor’s report unless the auditor
has complied with the requirements of this SA and all other SAs relevant to the audit
the auditor shall comply with each requirement of an SA unless, in the circumstances of the
audit:
(a) The entire SA is not relevant; or
(b) The requirement is not relevant because it is conditional and the condition does not exist.
Inherent Limitations of an Audit

(SA 200 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with Standards on Auditing”): The auditor is not expected to, and cannot, reduce
audit risk to zero because there are inherent limitations of an audit. The inherent limitations
of an audit arise from
➢ The Nature of Financial Reporting: The preparation of financial statements involves

judgment by management, which can be subjective.
➢ The Nature of Audit Procedures: There are practical and legal limitations on the
auditor’s ability to obtain audit evidence such as:
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• Possibility that management or others may not provide, Intentionally or
unintentionally, the complete information relevant for preparation and
presentation of FS.
• Fraud may involve sophisticated and carefully organised schemes.
• An audit is not an official investigation into alleged wrongdoing
➢ Timeliness of Financial Reporting and the Balance between Benefit and Cost: The
matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor
to omit an audit procedure for which there is no alternative. Relevance of information,
and thereby its value, tends to diminish over time, and there is a balance to be struck
between the reliability of information and its cost.
➢ Other Matters that Affect the Limitations of an Audit: Certain assertions or subject
matters are particularly significant, such assertions or subject matters include:
• Fraud, particularly involving senior management or collusion.
• The occurrence of non-compliance with laws and regulations.
• The existence and completeness of related party relationships and
transactions
• Future events or conditions that may cause an entity to cease to continue as
a going concern
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SA 200 - OVERALL OBJECTIVE OF THE INDEPENDENT AUDITOR & THE CONDUCT

OF AN AUDIT IN ACCORDANCE WITH SA

Overall objectives of independent Auditor

Applicable financial reporting framework – The financial reporting framework adopted by

Misstatement – A difference between the amount, classification, presentation, or disclosure

Professional judgment is essential to the proper conduct of an audit

Professional scepticism – An attitude that includes a questioning mind, being alert to

to inquiries to be used as audit evidence.

➢ Conditions that may indicate possible fraud.

required by the SAs.

Maintaining professional scepticism reduce the risks of:

✓ Over generalising when drawing conclusions from audit observations.

✓ Using inappropriate assumptions in determining the nature, timing, and extent of

the audit procedures and evaluating the results thereof

Ethical Requirement relating to Audit of FS – {PICOC}

✓ Integrity - Integrity requires auditor to be straight forward and honest in all

Conduct of Audit in accordance with

(a) The entire SA is not relevant; or

Inherent Limitations of an Audit

➢ The Nature of Financial Reporting: The preparation of financial statements involves

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