Overall Objectives of the Independent Auditor AUC Section Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards Source S - PDF document

Overall Objectives of the Independent Auditor  AUC Section  Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards Source S
Overall Objectives of the Independent Auditor  AUC Section  Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards Source S

Overall Objectives of the Independent Auditor AUC Section Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards Source S - Description


122 SAS No 123 Effective for audits of 64257nancial statements for periods ending on or after December 15 2012 NOTE In February 2014 the Auditing Standards Board issued SAS No 128 Using the Work of Internal Auditors sec 610 which contains amend ment ID: 37015 Download Pdf

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OverallObjectivesoftheIndependentAuditor AU-CSection200 OverallObjectivesoftheIndependentAuditorandtheConductofanAuditinAccordanceWithGenerallyAcceptedAuditingStandards Source:SASNo.122;SASNo.123;SASNo.128;SASNo.130;SASNo.134;SASNo.136;SASNo.138.EffectiveforauditsofnancialstatementsforperiodsendingonorafterDecember15,2012,unlessotherwiseindicated. ScopeofThisSection Thissectionaddressestheindependentauditor'soverallresponsibili-tieswhenconductinganauditofnancialstatementsinaccordancewithgen-erallyacceptedauditingstandards(GAAS).Specically,itsetsouttheoverallobjectivesoftheindependentauditor(theauditor)andexplainsthenatureandscopeofanauditdesignedtoenabletheauditortomeetthoseobjectives.Italsoexplainsthescope,authority,andstructureofGAASandincludesrequirementsestablishingthegeneralresponsibilitiesoftheauditorapplicableinallengage-mentsconductedinaccordancewithGAAS,includingtheobligationtocomplywithGAAS.[Asamended,effectiveforauditsforperiodsendingonorafterDecember15,2016,bySASNo.130.]GAASaredevelopedandissuedintheformofStatementsonAudit-ingStandards(SASs)andarecodiedintoAU-Csections.GAASarewritteninthecontextofanauditofnancialstatementsbyanauditor.TheyaretobeadaptedasnecessaryinthecircumstanceswhenappliedtootherengagementsconductedinaccordancewithGAAS,suchasauditsofotherhistoricalnancialinformation,complianceaudits,andauditsofinternalcontrolovernancialre-portingthatareintegratedwithauditsofnancialstatements.GAASdonotaddresstheresponsibilitiesoftheauditorthatmayexistinlegislation,regu-lation,orotherwise,inconnectionwith,forexample,theofferingofsecuritiestothepublic.SuchresponsibilitiesmaydifferfromthoseestablishedinGAAS.Accordingly,althoughtheauditormayndaspectsofGAAShelpfulinsuchcircumstances,itistheresponsibilityoftheauditortoensurecompliancewithallrelevantlegal,regulatory,orprofessionalobligations.[Asamended,effectiveforauditsforperiodsendingonorafterDecember15,2016,bySASNo.130.] AssociationWithFinancialStatements Anauditorisassociatedwithnancialinformationwhentheaudi-torhasappliedproceduressufcienttopermittheauditortoreportinaccor-dancewithGAAS.StatementsonStandardsforAccountingandReviewSer-vicesaddresstheaccountant'sconsiderationswhentheaccountantpreparesandpresentsnancialstatementstotheentityortothirdparties. ©2020,AICPAAU-C§200.03 82GeneralPrinciplesandResponsibilities AnAuditofFinancialStatements .04Thepurposeofanauditistoprovidenancialstatementuserswithanopinionbytheauditoronwhetherthenancialstatementsarepresentedfairly,inallmaterialrespects,inaccordancewithanapplicablenancialreportingframework,whichenhancesthedegreeofcondencethatintendeduserscanplaceinthenancialstatements.AnauditconductedinaccordancewithGAASandrelevantethicalrequirementsenablestheauditortoformthatopinion.(Ref:par..A1).05Thenancialstatementssubjecttoauditarethoseoftheentity,pre-paredandpresentedbymanagementoftheentitywithoversightfromthosechargedwithgovernance.GAASdonotimposeresponsibilitiesonmanagementorthosechargedwithgovernanceanddonotoverridelawsandregulationsthatgoverntheirresponsibilities.However,anauditinaccordancewithGAASisconductedonthepremisethatmanagementand,whenappropriate,thosechargedwithgovernancehaveacknowledgedcertainresponsibilitiesthatarefundamentaltotheconductoftheaudit.Theauditofthenancialstatementsdoesnotrelievemanagementorthosechargedwithgovernanceoftheirrespon-sibilities.(Ref:par..A2….A13).06Asthebasisfortheauditor'sopinion,GAASrequiretheauditortoob-tainreasonableassuranceaboutwhetherthenancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror.Reason-ableassuranceisahigh,butnotabsolute,levelofassurance.Itisobtainedwhentheauditorhasobtainedsufcientappropriateauditevidencetoreduceauditrisk(thatis,theriskthattheauditorexpressesaninappropriateopinionwhenthenancialstatementsaremateriallymisstated)toanacceptablylowlevel.Reasonableassuranceisnotanabsolutelevelofassurancebecausethereareinherentlimitationsofanauditthatresultinmostoftheauditevidence,onwhichtheauditordrawsconclusionsandbasestheauditor'sopinion,beingpersuasiveratherthanconclusive.(Ref:par..A32….A56).07Theconceptofmaterialityisappliedbytheauditorwhenbothplan-ningandperformingtheaudit,andinevaluatingtheeffectofidentiedmis-statementsontheauditanduncorrectedmisstatements,ifany,onthenancialstatements.1Ingeneral,misstatements,includingomissions,areconsideredtobematerialifthereisasubstantiallikelihoodthat,individuallyorintheag-gregate,theywouldinuencethejudgmentmadebyareasonableuserbasedonthenancialstatements.Judgmentsaboutmaterialityaremadeinlightofsurroundingcircumstances,andinvolvebothqualitativeandquantitativeconsiderations.Thesejudgmentsareaffectedbytheauditor'sperceptionofthenancialinformationneedsofusersofthenancialstatements,andbythesizeornatureofamisstatement,orboth.Theauditor'sopinionaddressesthenancialstatementsasawhole.Therefore,theauditorhasnoresponsibilitytoplanandperformtheaudittoobtainreasonableassurancethatmisstate-ments,whethercausedbyfraudorerror,thatarenotmaterialtothenancialstatementsasawhole,aredetected.(Ref:par..A14)[Asamended,effectiveforauditsofnancialstatementsforperiodsendingonorafterDecember15,2021,bySASNo.138.].08GAAScontainobjectives,requirements,andapplicationandotherexplanatorymaterialthataredesignedtosupporttheauditorinobtainingreasonableassurance.GAASrequirethattheauditorexerciseprofessional 1Seesection320,MaterialityinPlanningandPerforminganAudit,andsection450,EvaluationofMisstatementsIdentiedDuringtheAudit. AU-C§200.04©2020,AICPA OverallObjectivesoftheIndependentAuditor83 judgmentandmaintainprofessionalskepticismthroughouttheplanningandperformanceoftheauditand,amongotherthings,€identifyandassessrisksofmaterialmisstatement,whetherduetofraudorerror,basedonanunderstandingoftheentityanditsenvironment,includingtheentity'sinternalcontrol.€obtainsufcientappropriateauditevidenceaboutwhetherma-terialmisstatementsexist,throughdesigningandimplementingappropriateresponsestotheassessedrisks.€formanopiniononthenancialstatements,ordeterminethatanopinioncannotbeformed,basedonanevaluationoftheauditevidenceobtained..09Theformofopinionexpressedbytheauditorwilldependupontheapplicablenancialreportingframeworkandanyapplicablelaworregulation..10Theauditoralsomayhavecertainothercommunicationandreport-ingresponsibilitiestousers,management,thosechargedwithgovernance,orpartiesoutsidetheentity,regardingmattersarisingfromtheaudit.Thesere-sponsibilitiesmaybeestablishedbyGAASorbyapplicablelaworregulation.2 EffectiveDate .11ThissectioniseffectiveforauditsofnancialstatementsforperiodsendingonorafterDecember15,2012. OverallObjectivesoftheAuditor .12Theoverallobjectivesoftheauditor,inconductinganauditofnancialstatements,areto a. obtainreasonableassuranceaboutwhetherthenancialstate-mentsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,therebyenablingtheauditortoexpressanopiniononwhetherthenancialstatementsarepresentedfairly,inallmaterialrespects,inaccordancewithanapplicablenancialreportingframework;and b. reportonthenancialstatements,andcommunicateasrequiredbyGAAS,inaccordancewiththeauditor'sndings..13Inallcaseswhenreasonableassurancecannotbeobtainedandaqual-iedopinionintheauditor'sreportisinsufcientinthecircumstancesforpur-posesofreportingtotheintendedusersofthenancialstatements,GAASre-quirethattheauditordisclaimanopinionorwithdrawfromtheengagement,whenwithdrawalispossibleunderapplicablelaworregulation. De“nitions .14ForpurposesofGAAS,thefollowingtermshavethemeaningsat-tributedasfollows: Applicablenancialreportingframework.Thenancialreport-ingframeworkadoptedbymanagementand,whenappropriate, 2Forexamples,seesection260,TheAuditor'sCommunicationWithThoseChargedWithGov-ernance;section265,CommunicatingInternalControlRelatedMattersIdentiedinanAudit;andparagraph.42ofsection240,ConsiderationofFraudinaFinancialStatementAudit. ©2020,AICPAAU-C§200.14 84GeneralPrinciplesandResponsibilities thosechargedwithgovernanceinthepreparationandfairpre-sentationofthenancialstatementsthatisacceptableinviewofthenatureoftheentityandtheobjectiveofthenancialstate-ments,orthatisrequiredbylaworregulation. Auditevidence.Informationusedbytheauditorinarrivingattheconclusionsonwhichtheauditor'sopinionisbased.Auditevidenceincludesbothinformationcontainedintheaccountingrecordsunderlyingthenancialstatementsandotherinforma-tion.Sufciencyofauditevidenceisthemeasureofthequantityofauditevidence.Thequantityoftheauditevidenceneededisaffectedbytheauditor'sassessmentoftherisksofmaterialmis-statementandalsobythequalityofsuchauditevidence.Appro-priatenessofauditevidenceisthemeasureofthequalityofauditevidence;thatis,itsrelevanceanditsreliabilityinprovidingsup-portfortheconclusionsonwhichtheauditor'sopinionisbased. Auditrisk.Theriskthattheauditorexpressesaninappropriateauditopinionwhenthenancialstatementsaremateriallymis-stated.Auditriskisafunctionoftherisksofmaterialmisstate-mentanddetectionrisk. Auditor.Thetermusedtorefertothepersonorpersonsconductingtheaudit,usuallytheengagementpartnerorothermembersoftheengagementteam,or,asapplicable,therm.WhenanAU-Csectionexpresslyintendsthatarequirementorresponsibilitybefullledbytheengagementpartner,thetermengagementpartnerratherthanauditorisused.Engagementpartnerandrmaretobereadasreferringtotheirgovernmentalequivalentswhenrel-evant. Detectionrisk.Theriskthattheproceduresperformedbytheau-ditortoreduceauditrisktoanacceptablylowlevelwillnotdetectamisstatementthatexistsandthatcouldbematerial,eitherin-dividuallyorwhenaggregatedwithothermisstatements. Financialreportingframework.Asetofcriteriausedtodeter-minemeasurement,recognition,presentation,anddisclosureofallmaterialitemsappearinginthenancialstatements;forex-ample,U.S.generallyacceptedaccountingprinciples,Interna-tionalFinancialReportingStandards(IFRSs)promulgatedbytheInternationalAccountingStandardsBoard(IASB),oraspecialpurposeframework.3Thetermfairpresentationframeworkreferstoanancialreport-ingframeworkthatrequirescompliancewiththerequirementsoftheframeworkanda.acknowledgesexplicitlyorimplicitlythat,toachievefairpresentationofthenancialstatements,itmaybeneces-saryformanagementtoprovidedisclosuresbeyondthosespecicallyrequiredbytheframework;orb.acknowledgesexplicitlythatitmaybenecessaryforman-agementtodepartfromarequirementoftheframeworktoachievefairpresentationofthenancialstatements.Suchdeparturesareexpectedtobenecessaryonlyinrarecir-cumstances. 3Seesection800,SpecialConsiderations„AuditsofFinancialStatementsPreparedinAccor-danceWithSpecialPurposeFrameworks. AU-C§200.14©2020,AICPA OverallObjectivesoftheIndependentAuditor Anancialreportingframeworkthatrequirescompliancewiththerequirementsoftheframework,butdoesnotcontaintheac-knowledgmentsin()or()isnotafairpresentationframework. Financialstatements.Astructuredrepresentationofhistorical-nancialinformation,includingdisclosures,intendedtocommuni-cateanentity'seconomicresourcesandobligationsatapointintimeorthechangesthereinforaperiodoftime,inaccordancewithanancialreportingframework.Thetermnancialstate-ordinarilyreferstoacompletesetofnancialstatementsasdeterminedbytherequirementsoftheapplicablenancialre-portingframeworkbutcanalsorefertoasinglenancialstate-ment.Disclosurescompriseexplanatoryordescriptiveinforma-tion,setoutasrequired,expresslypermittedorotherwiseallowedbytheapplicablenancialreportingframework,onthefaceofanancialstatementorinthenotes,orincorporatedthereinbyref-erencewhenexpresslypermitted. Historicalnancialinformation.Informationexpressedinnan-cialtermsregardingaparticularentity,derivedprimarilyfromthatentity'saccountingsystem,abouteconomiceventsoccur-ringinpasttimeperiodsorabouteconomicconditionsorcircum-stancesatpointsintimeinthepast. Interpretivepublications.AuditinginterpretationsofGAAS,au-ditingguidanceincludedinAICPAAuditandAccountingGuides,andAICPAAuditingStatementsofPosition(SOP). Theperson(s)withexecutiveresponsibilityfortheconductoftheentity'soperations.Forsomeentities,managementincludessomeorallofthosechargedwithgovernance;forex-ample,executivemembersofagovernanceboardoranowner-manager. Adifferencebetweentheamount,classication,pre-sentation,ordisclosureofareportednancialstatementitemandtheamount,classication,presentation,ordisclosurethatisrequiredfortheitemtobepresentedfairlyinaccordancewiththeapplicablenancialreportingframework.Misstatementscanarisefromfraudorerror. Otherauditingpublications.Publicationsotherthaninterpretivepublications;theseincludeAICPAauditingpublicationsnotde-nedasinterpretivepublications;auditingarticlesintheJour-nalofAccountancyandotherprofessionaljournals;continuingprofessionaleducationprogramsandotherinstructionmaterials,textbooks,guidebooks,auditprograms,andchecklists;andotherauditingpublicationsfromstateCPAsocieties,otherorganiza-tions,andindividuals. Premiserelatingtotheresponsibilitiesofmanagementand,whenappropriate,thosechargedwithgovernance,onwhichanauditisconducted,(thepremise)Managementand,whenappropriate,thosechargedwithgovernancehaveacknowl-edgedandunderstandthattheyhavethefollowingresponsibili-tiesthatarefundamentaltotheconductofanauditinaccordancewithGAAS;thatis,responsibilityforthepreparationandfairpresentationofthenancialstatementsinaccordancewiththeapplicablenancialre-portingframework; ©2020,AICPAAU-C§200.14 GeneralPrinciplesandResponsibilities forthedesign,implementation,andmaintenanceofinter-nalcontrolrelevanttothepreparationandfairpresen-tationofnancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror;andtoprovidetheauditorwithi.accesstoallinformationofwhichmanagementand,whenappropriate,thosechargedwithgov-ernanceareawarethatisrelevanttotheprepa-rationandfairpresentationofthenancialstate-ments,suchasrecords,documentation,andotherii.additionalinformationthattheauditormayre-questfrommanagementand,whenappropriate,thosechargedwithgovernanceforthepurposeoftheaudit;andiii.unrestrictedaccesstopersonswithintheentityfromwhomtheauditordeterminesitnecessarytoobtainauditevidence. premise,relatingtotheresponsibilitiesofmanagementand,whenappropriate,thosechargedwithgovernance,onwhichanauditisconductedmayalsobereferredtoasthepremise. Professionaljudgment.Theapplicationofrelevanttraining,knowledge,andexperience,withinthecontextprovidedbyau-diting,accounting,andethicalstandards,inmakinginformedde-cisionsaboutthecoursesofactionthatareappropriateinthecir-cumstancesoftheauditengagement. Professionalskepticism.Anattitudethatincludesaquestioningmind,beingalerttoconditionsthatmayindicatepossiblemis-statementduetofraudorerror,andacriticalassessmentofauditevidence. Reasonableassurance.Inthecontextofanauditofnancialstate-ments,ahigh,butnotabsolute,levelofassurance. Riskofmaterialmisstatement.Theriskthatthenancialstate-mentsaremateriallymisstatedpriortotheaudit.Thisconsistsoftwocomponents,describedasfollowsattheassertionlevel:Inherentrisk.Thesusceptibilityofanassertionaboutaclassoftransaction,accountbalance,ordisclosuretoamisstatementthatcouldbematerial,eitherindividuallyorwhenaggregatedwithothermisstatements,beforecon-siderationofanyrelatedcontrols.Controlrisk.Theriskthatamisstatementthatcouldoccurinanassertionaboutaclassoftransaction,accountbal-ance,ordisclosureandthatcouldbematerial,eitherin-dividuallyorwhenaggregatedwithothermisstatements,willnotbeprevented,ordetectedandcorrected,onatimelybasisbytheentity'sinternalcontrol. Thosechargedwithgovernance.Theperson(s)ororganization(s)(forexample,acorporatetrustee)withresponsibilityforoversee-ingthestrategicdirectionoftheentityandtheobligationsrelatedtotheaccountabilityoftheentity.Thisincludesoverseeingthe-nancialreportingprocess.Thosechargedwithgovernancemayincludemanagementpersonnel;forexample,executivemembersofagovernanceboardoranowner-manager. AU-C§200.14©2020,AICPA OverallObjectivesoftheIndependentAuditor [Asamended,effectiveforauditsofnancialstatementsforperiodsendingonorafterDecember15,2021,bySASNo.134.] Requirements EthicalRequirementsRelatingtoanAuditofFinancial TheauditormustbeindependentoftheentitywhenperforminganengagementinaccordancewithGAASunless()GAASprovidesotherwiseor)theauditorisrequiredbylaworregulationtoaccepttheengagementandreportonthenancialstatements.Whentheauditorisnotindependentandneither()nor()areapplicable,theauditorisprecludedfromissuingareportunderGAAS.Theauditorshouldcomplywithrelevantethicalrequirementsrelatingtonancialstatementauditengagements.(Ref:par..A15….A21) ProfessionalSkepticism Theauditorshouldplanandperformanauditwithprofessionalskep-ticism,recognizingthatcircumstancesmayexistthatcausethenancialstate-mentstobemateriallymisstated.(Ref:par..A22….A26) ProfessionalJudgment Theauditorshouldexerciseprofessionaljudgmentinplanningandperforminganauditofnancialstatements.(Ref:par..A27….A31) Suf“cientAppropriateAuditEvidenceandAuditRisk Toobtainreasonableassurance,theauditorshouldobtainsufcientappropriateauditevidencetoreduceauditrisktoanacceptablylowlevelandtherebyenabletheauditortodrawreasonableconclusionsonwhichtobasetheauditor'sopinion.(Ref:par..A32….A56) ConductofanAuditinAccordanceWithGAAS ComplyingWithAU-CSectionsRelevanttotheAuditTheauditorshouldcomplywithallAU-Csectionsrelevanttotheaudit.AnAU-CsectionisrelevanttotheauditwhentheAU-CsectionisineffectandthecircumstancesaddressedbytheAU-Csectionexist.(Ref:par..A57….A62)TheauditorshouldhaveanunderstandingoftheentiretextofanAU-Csection,includingitsapplicationandotherexplanatorymaterial,tounderstanditsobjectivesandtoapplyitsrequirementsproperly.(Ref:par..A63….A71)TheauditorshouldnotrepresentcompliancewithGAASintheau-ditor'sreportunlesstheauditorhascompliedwiththerequirementsofthissectionandallotherAU-Csectionsrelevanttotheaudit.ObjectivesStatedinIndividualAU-CSectionsToachievetheoverallobjectivesoftheauditor,theauditorshouldusetheobjectivesstatedinindividualAU-Csectionsinplanningandperforming ©2020,AICPAAU-C§200.23 GeneralPrinciplesandResponsibilities theauditconsideringtheinterrelationshipswithinGAASto(Ref:par..A72… determinewhetheranyauditproceduresinadditiontothosere-quiredbyindividualAU-CsectionsarenecessaryinpursuanceoftheobjectivesstatedineachAU-Csection;and(Ref:par..A75) evaluatewhethersufcientappropriateauditevidencehasbeenobtained.(Ref:par..A76)ComplyingWithRelevantRequirementsSubjecttoparagraph.26,theauditorshouldcomplywitheachrequire-mentofanAU-Csectionunless,inthecircumstancesoftheaudit, a. theentireAU-Csectionisnotrelevant;or therequirementisnotrelevantbecauseitisconditionalandtheconditiondoesnotexist.(Ref:par..A77….A78)De“ningProfessionalResponsibilitiesinGAASGAASusethefollowingtwocategoriesofprofessionalrequirements,identiedbyspecicterms,todescribethedegreeofresponsibilityitimposesonauditors:Unconditionalrequirements.Theauditormustcomplywithanunconditionalrequirementinallcasesinwhichsuchrequirementisrelevant.GAASusetheword"must"toindicateanuncondi-tionalrequirement.Presumptivelymandatoryrequirements.Theauditormustcom-plywithapresumptivelymandatoryrequirementinallcasesinwhichsucharequirementisrelevantexceptinrarecircumstancesdiscussedinparagraph.26.GAASusetheword"should"toindi-cateapresumptivelymandatoryrequirement.(Ref:par..A79)Inrarecircumstances,theauditormayjudgeitnecessarytodepartfromarelevantpresumptivelymandatoryrequirement.Insuchcircumstances,theauditorshouldperformalternativeauditprocedurestoachievetheintentofthatrequirement.Theneedfortheauditortodepartfromarelevantpresump-tivelymandatoryrequirementisexpectedtoariseonlywhentherequirementisforaspecicproceduretobeperformedand,inthespeciccircumstancesoftheaudit,thatprocedurewouldbeineffectiveinachievingtheintentoftherequirement.(Ref:par..A80)InterpretivePublicationsTheauditorshouldconsiderapplicableinterpretivepublicationsinplanningandperformingtheaudit.(Ref:par..A81)OtherAuditingPublicationsInapplyingtheauditingguidanceincludedinanotherauditingpub-lication,theauditorshould,exercisingprofessionaljudgment,assesstherele-vanceandappropriatenessofsuchguidancetothecircumstancesoftheaudit.(Ref:par..A82….A84)FailuretoAchieveanObjectiveIfanobjectiveinarelevantAU-Csectioncannotbeachieved,theaudi-torshouldevaluatewhetherthispreventstheauditorfromachievingtheover-allobjectivesoftheauditorandtherebyrequirestheauditor,inaccordancewithGAAS,tomodifytheauditor'sopinionorwithdrawfromtheengagement(when AU-C§200.24©2020,AICPA OverallObjectivesoftheIndependentAuditor89 withdrawalispossibleunderapplicablelaworregulation).Failuretoachieveanobjectiverepresentsasignicantndingorissuerequiringdocumentationinaccordancewithsection230,AuditDocumentation.4(Ref:par..A85….A86) ApplicationandOtherExplanatoryMaterial AnAuditofFinancialStatements ScopeoftheAudit(Ref:par..04).A1Theauditor'sopiniononthenancialstatementsaddresseswhetherthenancialstatementsarepresentedfairly,inallmaterialrespects,inaccor-dancewiththeapplicablenancialreportingframework.Suchanopinioniscommontoallauditsofnancialstatements.Theauditor'sopinion,therefore,doesnotassure,forexample,thefutureviabilityoftheentitynortheefciencyoreffectivenesswithwhichmanagementhasconductedtheaffairsoftheen-tity.Insomecircumstances,however,applicablelaworregulationmayrequireauditorstoprovideopinionsonotherspecicmatters,suchastheeffectivenessofinternalcontrol.AlthoughGAASincluderequirementsandregardingsuchmatterstotheextentthattheyarerelevanttoforminganopiniononthenan-cialstatements,theauditorwouldberequiredtoundertakefurtherworkiftheauditorhadadditionalresponsibilitiestoprovidesuchopinions.PreparationandFairPresentationoftheFinancialStatements(Ref:par..05).A2AnauditinaccordancewithGAASisconductedonthepremisethatmanagementand,whenappropriate,thosechargedwithgovernancehaveac-knowledgedandunderstandthattheyhaveresponsibility a. forthepreparationandfairpresentationofthenancialstate-mentsinaccordancewiththeapplicablenancialreportingframework; b. forthedesign,implementation,andmaintenanceofinternalcon-trolrelevanttothepreparationandfairpresentationofnancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror;and c. toprovidetheauditorwithi.accesstoallinformationofwhichmanagementand,whenappropriate,thosechargedwithgovernanceareawarethatisrelevanttothepreparationandfairpresentationofthenancialstatements,suchasrecords,documentation,andothermatters;ii.additionalinformationthattheauditormayrequestfrommanagementand,whenappropriate,thosechargedwithgovernanceforthepurposeoftheaudit;andiii.unrestrictedaccesstopersonswithintheentityfromwhomtheauditordeterminesitnecessarytoobtainauditevidence..A3Thepreparationandfairpresentationofthenancialstatementsbymanagementand,whenappropriate,thosechargedwithgovernancerequire€theidenticationoftheapplicablenancialreportingframework,inthecontextofanyrelevantlawsorregulations. 4Paragraph.08cofsection230,AuditDocumentation. ©2020,AICPAAU-C§200.A3 90GeneralPrinciplesandResponsibilities €thepreparationandfairpresentationofthenancialstatementsinaccordancewiththatframework.€theinclusionofanadequatedescriptionofthatframeworkinthenancialstatements.Thepreparationandfairpresentationofthenancialstatementsrequireman-agementtoexercisejudgmentinmakingaccountingestimatesthatarerea-sonableinthecircumstances,aswellasinselectingandapplyingappropriateaccountingpolicies.Thesejudgmentsaremadeinthecontextoftheapplicablenancialreportingframework..A4Theauditormaymakesuggestionsabouttheformorcontentofthenancialstatements,orassistmanagementbypreparingthem,inwholeorinpart,basedoninformationprovidedtotheauditorbymanagementduringtheperformanceoftheaudit.*However,theauditor'sresponsibilityfortheauditednancialstatementsisconnedtotheexpressionoftheauditor'sopiniononthem.[Revised,October2013,toreectconformingchangesnecessaryduetotherevisionofEthicsInterpretationNo.101-3.].A5Thenancialstatementsmaybepreparedinaccordancewiththefollowing:€Ageneralpurposeframework(anancialreportingframeworkdesignedtomeetthecommonnancialinformationneedsofawiderangeofusers);or€Aspecialpurposeframework(anancialreportingframework,otherthangenerallyacceptedaccountingprinciples,whichisacash,tax,regulatory,contractualbasisofaccounting,orotherba-sisofaccounting;anotherbasisofaccountingusesadenitesetoflogical,reasonablecriteriathatisappliedtoallmaterialitemsappearinginnancialstatements).[Revised,July2013,toreectconformingchangesnecessaryduetotheissuanceofSASNo.127.].A6Theapplicablenancialreportingframeworkoftenencompasses-nancialaccountingstandardspromulgatedbyanauthorizedorrecognizedstandards-settingorganization,orlegislativeorregulatoryrequirements.Insomecases,thenancialreportingframeworkmayencompassbothnancialaccountingstandardspromulgatedbyanauthorizedorrecognizedstandards-settingorganizationandlegislativeorregulatoryrequirements.Othersourcesmayprovidedirectionontheapplicationoftheapplicablenancialreportingframework.Insomecases,theapplicablenancialreportingframeworkmayencompasssuchothersources,ormayevenconsistonlyofsuchsources.Suchothersourcesmayincludethefollowing:€Thelegalandethicalenvironment,includingstatutes,regula-tions,courtdecisions,andprofessionalethicalobligationsregard-ingaccountingmatters; *InJanuary2013,theProfessionalEthicsExecutiveCommitteeadoptedaprovisioninthe"ScopeandApplicabilityofNonattestServices"interpretation(ETsec.1.295.010)underthe"Inde-pendenceRule"(ETsec.1.200.001)oftheAICPACodeofProfessionalConduct.Thisprovisionpro-vides,amongotherthings,thatnancialstatementpreparationisconsideredoutsidethescopeoftheattestengagementand,therefore,constitutesanonattestservicesubjecttotherequirementsofthe"NonattestServices"subtopic(ETsec.1.295).Theprovisioniseffectiveforengagementscoveringpe-riodsbeginningonorafterDecember15,2014.[Footnoteadded,October2013,toreectconformingchangesnecessaryduetotherevisionofEthicsInterpretationNo.101-3.Footnoterevised,January2015,toreectconformingchangesnecessaryduetotheissuanceoftherevisedAICPACodeofPro-fessionalConduct,effectiveDecember15,2014.] AU-C§200.A4©2020,AICPA OverallObjectivesoftheIndependentAuditor Publishedaccountinginterpretationsofvaryingauthorityissuedbystandards-setting,professional,orregulatoryorganizations;Publishedviewsofvaryingauthorityonemergingaccountingis-suesissuedbystandards-setting,professional,orregulatoryorga-Generalandindustrypracticeswidelyrecognizedandprevalent;Accountingliterature.Whenconictsexistbetweenthenancialreportingframeworkandthesourcesfromwhichdirectiononitsapplicationmaybeobtained,oramongthesourcesthatencompassthenancialreportingframework,thesourcewiththehighestauthorityprevails.Therequirementsoftheapplicablenancialreportingframeworkde-terminetheformandcontentofthenancialstatements.Althoughtheframe-workmaynotspecifyhowtoaccountforordisclosealltransactionsorevents,itordinarilyembodiessufcientlybroadprinciplesthatcanserveasabasisfordevelopingandapplyingaccountingpoliciesthatareconsistentwiththeconceptsunderlyingtherequirementsoftheframework.Thenancialaccountingstandardspromulgatedbyorganizationsthatareauthorizedorrecognizedtopromulgatestandardstobeusedbyen-titiesforpreparingnancialstatementsinaccordancewithageneralpurposeframeworkincludeFinancialAccountingStandardsBoard(FASB)StandardsCodication,issuedbyFASB;IFRSs,issuedbytheIASB;State-mentsofFederalFinancialAccountingStandards,issuedbytheFederalAc-countingStandardsAdvisoryBoardforU.S.federalgovernmententities;andStatementsoftheGovernmentalAccountingStandardsBoard,issuedbytheGovernmentalAccountingStandardsBoardforU.S.stateandlocalgovernmen-talentities.Therequirementsoftheapplicablenancialreportingframeworkalsodeterminewhatconstitutesacompletesetofnancialstatements.Inthecaseofmanyframeworks,nancialstatementsareintendedtoprovideinformationaboutthenancialposition,nancialperformance,andcashowsofanentity.Forexample,acompletesetofnancialstatementsmightincludeabalancesheet,anincomestatement,astatementofchangesinequity,acashowstate-ment,andrelatednotes.Forsomeothernancialreportingframeworks,asin-glenancialstatementandtherelatednotesmightconstituteacompletesetofnancialstatements.Examplesofasinglenancialstatement,eachofwhichwouldincluderelatednotes,includethefollowing:BalancesheetStatementofincomeorstatementofoperationsStatementofretainedearningsStatementofcashowsStatementofassetsandliabilitiesStatementofchangesinowners'equityStatementofrevenueandexpensesStatementofoperationsbyproductlinesSection210,TermsofEngagement,establishesrequirementsandpro-videsguidanceondeterminingtheacceptabilityoftheapplicablenancial ©2020,AICPAAU-C§200.A10 92GeneralPrinciplesandResponsibilities reportingframework.5Section800,SpecialConsiderations„AuditsofFinan-cialStatementsPreparedinAccordanceWithSpecialPurposeFrameworks,ad-dressesengagementsinwhichtheauditorissuesareportinconnectionwithnancialstatementspreparedinaccordancewithaspecialpurposeframework..A11Becauseofthesignicanceofthepremisetotheconductofanau-dit,theauditorisrequiredtoobtaintheagreementofmanagementand,whenappropriate,thosechargedwithgovernance,thattheyacknowledgeandunder-standthattheyhavetheresponsibilitiessetoutinparagraph.A2asaprecon-ditionforacceptingtheauditengagement.6ConsiderationsSpecictoAuditsofGovernmentalEntities.A12Therequirementsforauditsofthenancialstatementsofgovern-mentalentitiesmaybebroaderthanthoseofotherentities.Asaresult,thepremise,relatingtomanagement'sresponsibilities,onwhichanauditofthenancialstatementsofagovernmentalentityisconducted,mayincludead-ditionalresponsibilities,suchastheresponsibilityfortheexecutionoftrans-actionsandeventsinaccordancewithlaw,regulation,orotherauthority.(Seeparagraph.A63.).A13Inauditsofgovernmentalentities,auditorsmayhavearesponsibil-ityunderlaw,regulation,contract,orgrantagreementtoreporttothirdparties,suchasfundingagenciesoroversightbodies.Materiality(Ref:par..07)ConsiderationsSpecictoAuditsofGovernmentalEntities.A14Formoststateorlocalgovernmentalentities,theapplicablenan-cialreportingframeworkisbasedonmultiplereportingunits,andthereforerequiresthepresentationofnancialstatementsforitsactivitiesinvariousre-portingunits.Consequently,areportingunit,oraggregationofreportingunits,ofthegovernmentalentityrepresentsanopinionunittotheauditor.Gener-ally,theauditorexpressesordisclaimsanopiniononagovernment'snancialstatementsasawholebyexpressinganopinionordisclaiminganopiniononeachopinionunit.Inthiscontext,theauditorisresponsibleforthedetectionofmisstatementsthatarematerialtoanopinionunitwithinagovernmentalentity,butisnotresponsibleforthedetectionofmisstatementsthatarenotmaterialtoanopinionunit. EthicalRequirementsRelatingtoanAuditofFinancialStatements(Ref:par..16) .A15Theauditorissubjecttorelevantethicalrequirementsrelatingtonancialstatementauditengagements.EthicalrequirementsconsistoftheAICPACodeofProfessionalConducttogetherwithrulesofstateboardsofac-countancyandapplicableregulatoryagenciesthataremorerestrictive..A16TheAICPACodeofProfessionalConductestablishesthefundamen-talprinciplesofprofessionalethics,whichincludethefollowing:€Responsibilities€Thepublicinterest€Integrity 5Paragraph.06aofsection210,TermsofEngagement.6Paragraph.06bofsection210. AU-C§200.A11©2020,AICPA OverallObjectivesoftheIndependentAuditor93 €Objectivityandindependence€Duecare€Scopeandnatureofservices.A17Inthecaseofanauditengagement,itisinthepublicinterestand,therefore,requiredbythissection,thattheauditorbeindependentoftheentitysubjecttotheaudit.Theconceptofindependencereferstobothindependenceinfactandindependenceinappearance.Theauditor'sindependencefromtheentitysafeguardstheauditor'sabilitytoformanauditopinionwithoutbeingaffectedbyinuencesthatmightcompromisethatopinion.Independenceen-hancestheauditor'sabilitytoactwithintegrity,tobeobjective,andtomain-tainanattitudeofprofessionalskepticism.Independenceimpliesanimpartial-itythatrecognizesanobligationtobefairnotonlytomanagementandthosechargedwithgovernanceofanentitybutalsousersofthenancialstatementswhomayrelyupontheindependentauditor'sreport.GuidanceonthreatstoindependenceissetforthintheAICPA's"ConceptualFrameworkforInde-pendence"(ETsec.1.210.010).[Revised,January2015,toreectconformingchangesnecessaryduetotheissuanceoftherevisedAICPACodeofProfes-sionalConduct,effectiveDecember15,2014.].A18Whentheauditorisnotindependentbutisrequiredbylaworreg-ulationtoreportonthenancialstatements,section705,ModicationstotheOpinionintheIndependentAuditor'sReport,applies..A19Duecarerequirestheauditortodischargeprofessionalresponsibil-itieswithcompetenceandtohavetheappropriatecapabilitiestoperformtheauditandenableanappropriateauditor'sreporttobeissued..A20QCsection10,AFirm'sSystemofQualityControl,setsouttherm'sresponsibilitiestoestablishandmaintainitssystemofqualitycontrolforau-ditengagements,andtoestablishpoliciesandproceduresdesignedtoprovideitwithreasonableassurancethatthermanditspersonnelcomplywithrelevantethicalrequirements,includingthosepertainingtoindependence.7Section220,QualityControlforanEngagementConductedinAccordanceWithGen-erallyAcceptedAuditingStandards,addressestheengagementpartner'sre-sponsibilitiesregardingrelevantethicalrequirements.Theseincluderemain-ingalertforevidenceofnoncompliancewithrelevantethicalrequirementsbymembersoftheengagementteam,determining,inconsultationwithothersinthermasappropriate,theappropriateactionifmatterscometotheengage-mentpartner'sattention,throughtherm'ssystemofqualitycontrolorother-wise,thatindicatethatmembersoftheengagementteamhavenotcompliedwithrelevantethicalrequirements,andformingaconclusiononcompliancewithindependencerequirementsthatapplytotheauditengagement.8Section220recognizesthattheengagementteamisentitledtorelyonarm'ssystemofqualitycontrolinmeetingitsresponsibilitieswithrespecttoqualitycontrolproceduresapplicabletotheindividualauditengagement,unlesstheengage-mentpartnerdeterminesthatitisinappropriatetodosobasedoninformationprovidedbythermorotherparties.ConsiderationsSpeci“ctoAuditsofGovernmentalEntities.A21InadditiontotheAICPACodeofProfessionalConductandGAAS,GovernmentAuditingStandards,whichmayberequiredbylaw,regulation,contract,orgrantagreementinauditsofgovernmentalentitiesandentities 7Paragraphs.21….25ofQCsection10,AFirm'sSystemofQualityControl.8Paragraphs.11….13ofsection220,QualityControlforanEngagementConductedinAccordanceWithGenerallyAcceptedAuditingStandards. ©2020,AICPAAU-C§200.A21 94GeneralPrinciplesandResponsibilities thatreceivegovernmentawards,setforthrelevantethicalprinciplesandau-ditingstandards,includingstandardsonauditorindependence,professionaljudgment,competence,andauditqualitycontrolandassurance. ProfessionalSkepticism(Ref:par..17) .A22Professionalskepticismincludesbeingalerttothefollowing,forexample,€Auditevidencethatcontradictsotherauditevidenceobtained.€Informationthatbringsintoquestionthereliabilityofdocumentsandresponsestoinquiriestobeusedasauditevidence.€Conditionsthatmayindicatepossiblefraud.€Circumstancesthatsuggesttheneedforauditproceduresinad-ditiontothoserequiredbyGAAS..A23Maintainingprofessionalskepticismthroughouttheauditisneces-saryiftheauditoris,forexample,toreducetherisksof€overlookingunusualcircumstances.€over-generalizingwhendrawingconclusionsfromauditobserva-tions.€usinginappropriateassumptionsindeterminingthenature,tim-ing,andextentoftheauditproceduresandevaluatingtheresultsthereof..A24Professionalskepticismisnecessarytothecriticalassessmentofau-ditevidence.Thisincludesquestioningcontradictoryauditevidenceandthereliabilityofdocumentsandresponsestoinquiriesandotherinformationob-tainedfrommanagementandthosechargedwithgovernance.Italsoincludesconsiderationofthesufciencyandappropriatenessofauditevidenceobtainedinlightofthecircumstances;forexample,inthecasewhenfraudriskfactorsexistandasingledocument,ofanaturethatissusceptibletofraud,isthesolesupportingevidenceforamaterialnancialstatementamount..A25Theauditormayacceptrecordsanddocumentsasgenuineunlesstheauditorhasreasontobelievethecontrary.Nevertheless,theauditorisre-quiredtoconsiderthereliabilityofinformationtobeusedasauditevidence.9Incasesofdoubtaboutthereliabilityofinformationorindicationsofpossiblefraud(forexample,ifconditionsidentiedduringtheauditcausetheauditortobelievethatadocumentmaynotbeauthenticorthattermsinadocumentmayhavebeenfalsied),GAASrequirethattheauditorinvestigatefurtherandde-terminewhatmodicationsoradditionstoauditproceduresarenecessarytoresolvethematter.10.A26Theauditorneitherassumesthatmanagementisdishonestnoras-sumesunquestionedhonesty.Theauditorcannotbeexpectedtodisregardpastexperienceofthehonestyandintegrityoftheentity'smanagementandthosechargedwithgovernance.Nevertheless,abeliefthatmanagementandthosechargedwithgovernancearehonestandhaveintegritydoesnotrelievetheau-ditoroftheneedtomaintainprofessionalskepticismorallowtheauditortobesatisedwithlessthanpersuasiveauditevidencewhenobtainingreasonableassurance. 9Paragraphs.07….09ofsection500,AuditEvidence.10Paragraph.10ofsection500andparagraphs.10….11and.16ofsection505,ExternalConr-mations. AU-C§200.A22©2020,AICPA OverallObjectivesoftheIndependentAuditor95 ProfessionalJudgment(Ref:par..18) .A27Professionaljudgmentisessentialtotheproperconductofanaudit.ThisisbecauseinterpretationofrelevantethicalrequirementsandGAASandtheinformeddecisionsrequiredthroughouttheauditcannotbemadewithouttheapplicationofrelevantknowledgeandexperiencetothefactsandcircum-stances.Inparticular,professionaljudgmentisnecessaryregardingdecisionsaboutthefollowing:€Materialityandauditrisk€Thenature,timing,andextentofauditproceduresusedtomeettherequirementsofGAASandgatherauditevidence€Evaluatingwhethersufcientappropriateauditevidencehasbeenobtained,andwhethermoreneedstobedonetoachievetheobjectivesofGAASandthereby,theoverallobjectivesoftheauditor€Theevaluationofmanagement'sjudgmentsinapplyingtheen-tity'sapplicablenancialreportingframework€Thedrawingofconclusionsbasedontheauditevidenceobtained;forexample,assessingthereasonablenessoftheestimatesmadebymanagementinpreparingthenancialstatements.A28Thedistinguishingfeatureofprofessionaljudgmentexpectedofanauditoristhatsuchjudgmentisexercisedbasedoncompetenciesnecessarytoachievereasonablejudgments,developedbytheauditorthroughrelevanttraining,knowledge,andexperience..A29Theexerciseofprofessionaljudgmentinanyparticularcaseisbasedonthefactsandcircumstancesthatareknownbytheauditor.Consulta-tionondifcultorcontentiousmattersduringthecourseoftheaudit,bothwithintheengagementteamandbetweentheengagementteamandoth-ersattheappropriatelevelwithinoroutsidetherm,suchasthosere-quiredbysection220,assiststheauditorinmakinginformedandreasonablejudgments.11.A30Professionaljudgmentcanbeevaluatedbasedonwhetherthejudg-mentreachedreectsacompetentapplicationofauditingstandardsandac-countingprinciplesandisappropriateinlightof,andconsistentwith,thefactsandcircumstancesthatwereknowntotheauditoruptothedateoftheaudi-tor'sreport..A31Professionaljudgmentneedstobeexercisedthroughouttheaudit.Italsoneedstobeappropriatelydocumented.Inthisregard,theauditorisrequiredtoprepareauditdocumentationsufcienttoenableanexperiencedauditor,havingnopreviousconnectionwiththeaudit,tounderstandthesig-nicantprofessionaljudgmentsmadeinreachingconclusionsonsignicantndingsorissuesarisingduringtheaudit.12Professionaljudgmentisnottobeusedasthejusticationfordecisionsthatarenototherwisesupportedbythefactsandcircumstancesoftheengagementorbysufcientappropriateauditevidence. 11Paragraph.20ofsection220.12Paragraph.08ofsection230. ©2020,AICPAAU-C§200.A31 96GeneralPrinciplesandResponsibilities Suf“cientAppropriateAuditEvidenceandAuditRisk(Ref:par..19) Suf“ciencyandAppropriatenessofAuditEvidence.A32Auditevidenceisnecessarytosupporttheauditor'sopinionandre-port.Itiscumulativeinnatureandisprimarilyobtainedfromauditproceduresperformedduringthecourseoftheaudit.Itmay,however,alsoincludeinforma-tionobtainedfromothersourcessuchaspreviousaudits(providedtheauditorhasdeterminedwhetherchangeshaveoccurredsincethepreviousauditthatmayaffectitsrelevancetothecurrentaudit13)orarm'squalitycontrolproce-duresforclientacceptanceandcontinuance.Inadditiontoothersourcesinsideandoutsidetheentity,theentity'saccountingrecordsareanimportantsourceofauditevidence.Also,informationthatmaybeusedasauditevidencemayhavebeenpreparedbyaspecialistemployedorengagedbytheentity.Auditevidencecomprisesbothinformationthatsupportsandcorroboratesmanage-ment'sassertionsandanyinformationthatcontradictssuchassertions.Inad-dition,insomecases,theabsenceofinformation(forexample,management'srefusaltoprovidearequestedrepresentation)isusedbytheauditor,and,there-fore,alsoconstitutesauditevidence.Mostoftheauditor'sworkinformingtheauditor'sopinionconsistsofobtainingandevaluatingauditevidence..A33Thesufciencyandappropriatenessofauditevidenceareinterre-lated.Sufciencyisthemeasureofthequantityofauditevidence.Thequantityofauditevidenceneededisaffectedbytheauditor'sassessmentoftherisksofmisstatement(thehighertheassessedrisks,themoreauditevidenceislikelytoberequired)andalsobythequalityofsuchauditevidence(thehigherthequality,thelessmayberequired).Obtainingmoreauditevidence,however,maynotcompensateforitspoorquality..A34Appropriatenessisthemeasureofthequalityofauditevidence;thatis,itsrelevanceanditsreliabilityinprovidingsupportfortheconclusionsonwhichtheauditor'sopinionisbased.Thereliabilityofevidenceisinuencedbyitssourceandbyitsnature,andisdependentontheindividualcircumstancesunderwhichitisobtained..A35Whethersufcientappropriateauditevidencehasbeenobtainedtoreduceauditrisktoanacceptablylowlevel,andtherebytoenabletheauditortodrawreasonableconclusionsonwhichtobasetheauditor'sopinion,isamat-terofprofessionaljudgment.Section500,AuditEvidence,andotherrelevantAU-Csections,establishadditionalrequirementsandprovidefurtherguidanceapplicablethroughouttheauditregardingtheauditor'sconsiderationsinob-tainingsufcientappropriateauditevidence.AuditRisk.A36Auditriskisafunctionoftherisksofmaterialmisstatementanddetectionrisk.Theassessmentofrisksisbasedonauditprocedurestoobtaininformationnecessaryforthatpurposeandevidenceobtainedthroughouttheaudit.Theassessmentofrisksisamatterofprofessionaljudgment,ratherthanamattercapableofprecisemeasurement..A37ForpurposesofGAAS,auditriskdoesnotincludetheriskthattheauditormightexpressanopinionthatthenancialstatementsaremateriallymisstatedwhentheyarenot.Thisriskisordinarilyinsignicant.Further,audit 13Paragraph.10ofsection315,UnderstandingtheEntityandItsEnvironmentandAssessingtheRisksofMaterialMisstatement. AU-C§200.A32©2020,AICPA OverallObjectivesoftheIndependentAuditor riskisatechnicaltermrelatedtotheprocessofauditing;itdoesnotrefertotheauditor'sbusinessrisks,suchaslossfromlitigation,adversepublicity,orothereventsarisinginconnectionwiththeauditofnancialstatements.RisksofMaterialMisstatementTherisksofmaterialmisstatementexistattwolevels:TheoverallnancialstatementlevelTheassertionlevelforclassesoftransactions,accountbalances,anddisclosuresRisksofmaterialmisstatementattheoverallnancialstatementlevelrefertorisksofmaterialmisstatementthatrelatepervasivelytothe-nancialstatementsasawholeandpotentiallyaffectmanyassertions.Risksofmaterialmisstatementattheassertionlevelareassessedinordertodeterminethenature,timing,andextentoffurtherauditproce-duresnecessarytoobtainsufcientappropriateauditevidence.Thisevidenceenablestheauditortoexpressanopiniononthenancialstatementsatanac-ceptablylowlevelofauditrisk.Auditorsusevariousapproachestoaccomplishtheobjectiveofassessingtherisksofmaterialmisstatement.Forexample,theauditormaymakeuseofamodelthatexpressesthegeneralrelationshipofthecomponentsofauditriskinmathematicaltermstoarriveatanacceptablelevelofdetectionrisk.Someauditorsndsuchamodeltobeusefulwhenplanningauditprocedures.Therisksofmaterialmisstatementattheassertionlevelconsistoftwocomponents:inherentriskandcontrolrisk.Inherentriskandcontrolriskaretheentity'srisks;theyexistindependentlyoftheauditofthenancialstate-ments.Inherentriskishigherforsomeassertionsandrelatedclassesoftransactions,accountbalances,anddisclosuresthanforothers.Forexample,itmaybehigherforcomplexcalculationsorforaccountsconsistingofamountsderivedfromaccountingestimatesthataresubjecttosignicantestimationuncertainty.Externalcircumstancesgivingrisetobusinessrisksmayalsoin-uenceinherentrisk.Forexample,technologicaldevelopmentsmightmakeaparticularproductobsolete,therebycausinginventorytobemoresusceptibletooverstatement.Factorsintheentityanditsenvironmentthatrelatetosev-eraloralloftheclassesoftransactions,accountbalances,ordisclosuresmayalsoinuencetheinherentriskrelatedtoaspecicassertion.Suchfactorsmayinclude,forexample,alackofsufcientworkingcapitaltocontinueop-erationsoradecliningindustrycharacterizedbyalargenumberofbusinessfailures.Controlriskisafunctionoftheeffectivenessofthedesign,imple-mentation,andmaintenanceofinternalcontrolbymanagementtoaddressidentiedrisksthatthreatentheachievementoftheentity'sobjectivesrele-vanttopreparationandfairpresentationoftheentity'snancialstatements.However,internalcontrol,nomatterhowwelldesignedandoperated,canonlyreduce,butnoteliminate,risksofmaterialmisstatementinthenancialstate-ments,becauseoftheinherentlimitationsofinternalcontrol.Theseinclude,forexample,thepossibilityofhumanerrorsormistakes,orofcontrolsbeingcircumventedbycollusionorinappropriatemanagementoverride.Accordingly,somecontrolriskwillalwaysexist.GAASprovidetheconditionsunderwhichtheauditorisrequiredto,ormaychooseto,testtheoperatingeffectivenessof ©2020,AICPAAU-C§200.A43 98GeneralPrinciplesandResponsibilities controlsindeterminingthenature,timing,andextentofsubstantiveproce-durestobeperformed.14.A44GAASdonotordinarilyrefertoinherentriskandcontrolrisksepa-rately,butrathertoacombinedassessmentoftherisksofmaterialmisstate-ment.However,theauditormaymakeseparateorcombinedassessmentsofinherentandcontrolriskdependingonpreferredaudittechniquesormethod-ologiesandpracticalconsiderations.Theassessmentoftherisksofmaterialmisstatementmaybeexpressedinquantitativeterms,suchasinpercentagesorinnonquantitativeterms.Inanycase,theneedfortheauditortomakeap-propriateriskassessmentsismoreimportantthanthedifferentapproachesbywhichtheymaybemade..A45Section315,UnderstandingtheEntityandItsEnvironmentandAs-sessingtheRisksofMaterialMisstatement,establishesrequirementsandpro-videsguidanceonidentifyingandassessingtherisksofmaterialmisstatementatthenancialstatementandassertionlevels.DetectionRisk.A46Foragivenlevelofauditrisk,theacceptablelevelofdetectionriskbearsaninverserelationshiptotheassessedrisksofmaterialmisstatementattheassertionlevel.Forexample,thegreatertherisksofmaterialmisstatementtheauditorbelievesexists,thelessthedetectionriskthatcanbeacceptedand,accordingly,themorepersuasivetheauditevidencerequiredbytheauditor..A47Detectionriskrelatestothenature,timing,andextentoftheaudi-tor'sproceduresthataredeterminedbytheauditortoreduceauditrisktoanacceptablylowlevel.Itisthereforeafunctionoftheeffectivenessofanau-ditprocedureandofitsapplicationbytheauditor.Thefollowingmattersas-sisttoenhancetheeffectivenessofanauditprocedureandofitsapplicationandreducethepossibilitythatanauditormightselectaninappropriateauditprocedure,misapplyanappropriateauditprocedure,ormisinterprettheauditresults:€Adequateplanning€Properassignmentofpersonneltotheengagementteam€Theapplicationofprofessionalskepticism€Supervisionandreviewoftheauditworkperformed.A48Section300,PlanninganAudit,andsection330,PerformingAuditProceduresinResponsetoAssessedRisksandEvaluatingtheAuditEvidenceObtained,establishrequirementsandprovideguidanceonplanninganauditofnancialstatementsandtheauditor'sresponsestoassessedrisks.Detec-tionrisk,however,canonlybereduced,noteliminated,becauseoftheinherentlimitationsofanaudit.Accordingly,somedetectionriskwillalwaysexist.InherentLimitationsofanAudit.A49Theauditorisnotexpectedto,andcannot,reduceauditrisktozeroandcannot,therefore,obtainabsoluteassurancethatthenancialstatementsarefreefrommaterialmisstatementduetofraudorerror.Thisisbecausein-herentlimitationsofanauditexist,whichresultinmostoftheauditevidenceonwhichtheauditordrawsconclusionsandbasestheauditor'sopinionbeingpersuasiveratherthanconclusive.Theprincipalinherentlimitationsofanau-ditarisefrom 14Paragraph.08ofsection330,PerformingAuditProceduresinResponsetoAssessedRisksandEvaluatingtheAuditEvidenceObtained. AU-C§200.A44©2020,AICPA OverallObjectivesoftheIndependentAuditor99 €thenatureofnancialreporting;€thenatureofauditprocedures;and€theneedfortheaudittobeconductedwithinareasonableperiodoftimeandsoastoachieveabalancebetweenbenetandcost.TheNatureofFinancialReporting.A50Thepreparationandfairpresentationofnancialstatementsin-volvesjudgmentbymanagementinapplyingtherequirementsoftheentity'sapplicablenancialreportingframeworktothefactsandcircumstancesoftheentity.Inaddition,manynancialstatementitemsinvolvesubjectivedecisionsorassessmentsoradegreeofuncertainty,andarangeexistsofacceptableinter-pretationsorjudgmentsthatmaybemade.Consequently,somenancialstate-mentitemsaresubjecttoaninherentlevelofvariabilitythatcannotbeelim-inatedbytheapplicationofadditionalauditingprocedures.Forexample,thisisoftenthecasewithrespecttocertainaccountingestimatesthataredepen-dentonpredictionsoffutureevents.Nevertheless,GAASrequiretheauditortogivespecicconsiderationtowhetheraccountingestimatesarereasonableinthecontextoftheapplicablenancialreportingframeworkandtorelateddisclosures,andtothequalitativeaspectsoftheentity'saccountingpractices,includingindicatorsofpossiblebiasinmanagement'sjudgments.15TheNatureofAuditProcedures.A51Therearepracticalandlegallimitationsontheauditor'sabilitytoobtainauditevidence.Forexample:€Thereisthepossibilitythatmanagementorothersmaynotpro-vide,intentionallyorunintentionally,thecompleteinformationthatisrelevanttothepreparationandfairpresentationofthenancialstatementsorthathasbeenrequestedbytheauditor.Accordingly,theauditorcannotbecertainofthecompletenessofinformation,eventhoughtheauditorhasperformedauditproce-durestoobtainassurancethatallrelevantinformationhasbeenobtained.€Fraudmayinvolvesophisticatedandcarefullyorganizedschemesdesignedtoconcealit.Therefore,auditproceduresusedtogatherauditevidencemaybeineffectivefordetectinganintentionalmis-statementthatinvolves,forexample,collusiontofalsifydocumen-tationthatmaycausetheauditortobelievethatauditevidenceisvalidwhenitisnot.Theauditorisneithertrainedasnorexpectedtobeanexpertintheauthenticationofdocuments.€Anauditisnotanofcialinvestigationintoallegedwrongdoing.Accordingly,theauditorisnotgivenspeciclegalpowers,suchasthepowerofsearch,whichmaybenecessaryforsuchaninvesti-gation.TimelinessofFinancialReportingandtheBalanceBetweenBenetandCost.A52Thematterofdifculty,time,orcostinvolvedisnotinitselfavalidbasisfortheauditortoomitanauditprocedureforwhichthereisnoalterna-tiveortobesatisedwithauditevidencethatislessthanpersuasive.Appro-priateplanningassistsinmakingsufcienttimeandresourcesavailablefor 15Seesection540,AuditingAccountingEstimates,IncludingFairValueAccountingEstimates,andRelatedDisclosures,andsection700,ForminganOpinionandReportingonFinancialStatements,orsection703,ForminganOpinionandReportingonFinancialStatementsofEmployeeBenetPlansSubjecttoERISA.[Asamended,effectiveforauditsofnancialstatementsforperiodsendingonorafterDecember15,2021,bySASNo.136.] ©2020,AICPAAU-C§200.A52 100GeneralPrinciplesandResponsibilities theconductoftheaudit.Notwithstandingthis,therelevanceofinformation,andtherebyitsvalue,tendstodiminishovertime,andthereisabalancetobestruckbetweenthereliabilityofinformationanditscost.Thisisrecognizedincertainnancialreportingframeworks(see,forexample,FASB'sStatementsofFinancialAccountingConcepts).Therefore,thereisanexpectationbyusersofnancialstatementsthattheauditorwillformanopiniononthenancialstatementswithinareasonableperiodoftimeandsoastoachieveabalancebetweenbenetandcost,recognizingthatitisimpracticabletoaddressallinformationthatmayexistortopursueeverymatterexhaustivelyontheas-sumptionthatinformationisfraudulentorerroneousuntilprovedotherwise..A53Consequently,itisnecessaryfortheauditorto€plantheauditsothatitwillbeperformedinaneffectivemanner;€directauditefforttoareasmostexpectedtocontainrisksofmate-rialmisstatement,whetherduetofraudorerror,withcorrespond-inglylesseffortdirectedatotherareas;and€usetestingandothermeansofexaminingpopulationsformis-statements..A54Inlightoftheapproachesdescribedinparagraph.A53,GAAScontainrequirementsfortheplanningandperformanceoftheauditandrequirestheauditor,amongotherthings,to€haveabasisfortheidenticationandassessmentofrisksofma-terialmisstatementatthenancialstatementandassertionlev-elsbyperformingriskassessmentproceduresandrelatedactivi-ties;16and€usetestingandothermeansofexaminingpopulationsinaman-nerthatprovidesareasonablebasisfortheauditortodrawcon-clusionsaboutthepopulation.17OtherMattersThatAffecttheInherentLimitationsofanAudit.A55Inthecaseofcertainassertionsorsubjectmatters,thepotentialef-fectsoftheinherentlimitationsontheauditor'sabilitytodetectmaterialmis-statementsareparticularlysignicant.Suchassertionsorsubjectmattersin-cludethefollowing:€Fraud,particularlyfraudinvolvingseniormanagementorcollu-sion.Seesection240,ConsiderationofFraudinaFinancialState-mentAudit,forfurtherdiscussion.€Theexistenceandcompletenessofrelatedpartyrelationshipsandtransactions.Seesection550,RelatedParties,forfurtherdiscus-sion.€Theoccurrenceofnoncompliancewithlawsandregulations.Seesection250,ConsiderationofLawsandRegulationsinanAuditofFinancialStatements,forfurtherdiscussion.€Futureeventsorconditionsthatmaycauseanentitytoceasetocontinueasagoingconcern.Seesection570,TheAuditor'sCon-siderationofanEntity'sAbilitytoContinueasaGoingConcern. 16Seesection315.17Seesection330,section500,section520,AnalyticalProcedures,andsection530,AuditSam-pling. AU-C§200.A53©2020,AICPA OverallObjectivesoftheIndependentAuditor RelevantAU-Csectionsidentifyspecicauditprocedurestoassistinlesseningtheeffectoftheinherentlimitations.[Revised,August2012,toreectconform-ingchangesnecessaryduetotheissuanceofSASNo.126.]Becauseoftheinherentlimitationsofanaudit,thereisanunavoid-ableriskthatsomematerialmisstatementsofthenancialstatementsmaynotbedetected,eventhoughtheauditisproperlyplannedandperformedinac-cordancewithGAAS.Accordingly,thesubsequentdiscoveryofamaterialmis-statementofthenancialstatementsresultingfromfraudorerrordoesnotbyitselfindicateafailuretoconductanauditinaccordancewithGAAS.However,theinherentlimitationsofanauditarenotajusticationfortheauditortobesatisedwithlessthanpersuasiveauditevidence.WhethertheauditorhasperformedanauditinaccordancewithGAASisdeterminedbytheauditpro-ceduresperformedinthecircumstances,thesufciencyandappropriatenessoftheauditevidenceobtainedasaresultthereof,andthesuitabilityoftheauditor'sreportbasedonanevaluationofthatevidenceinlightoftheoverallobjectivesoftheauditor. ConductofanAuditinAccordanceWithGAAS NatureofGAAS(Ref:par..20)The"ComplianceWithStandardsRule"(ETsec.1.310.001)oftheAICPACodeofProfessionalConductrequiresanAICPAmemberwhoperformsanaudittocomplywithstandardspromulgatedbytheAuditingStandardsBoard(ASB).TheASBdevelopsandissuesstandardsintheformofSASsthroughaprocessthatincludesdeliberationinmeetingsopentothepublic,publicexposureofproposedSASs,andaformalvote.TheSASsarecodiedinAU-Csections.[Revised,January2015,toreectconformingchangesneces-saryduetotheissuanceoftherevisedAICPACodeofProfessionalConduct,effectiveDecember15,2014.]GAASprovidethestandardsfortheauditor'sworkinfulllingtheoverallobjectivesoftheauditor.GAASaddressthegeneralresponsibilitiesoftheauditor,aswellastheauditor'sfurtherconsiderationsrelevanttotheap-plicationofthoseresponsibilitiestospecictopics.Thescope,effectivedate,andanyspeciclimitationoftheapplica-bilityofaspecicAU-CsectionaremadeclearintheAU-Csection.UnlessotherwisestatedintheAU-Csection,theauditorispermittedtoapplyanAU-Csectionbeforetheeffectivedatespeciedtherein.Incertainauditengagements,theauditoralsomayberequiredtocomplywithotherauditingrequirementsinadditiontoGAAS.GAASdonotoverridelaworregulationthatgovernsanauditofnancialstatements.IntheeventthatsuchlaworregulationdiffersfromGAAS,anauditconductedonlyinaccordancewithlaworregulationwillnotnecessarilycomplywithGAAS.TheauditormayalsoconducttheauditinaccordancewithbothGAASandauditingstandardspromulgatedbythePublicCompanyAccount-ingOversightBoard,InternationalStandardsonAuditing,GovernmentAuditingStandards,orauditingstandardsofaspecicjurisdictionorcountry. ©2020,AICPAAU-C§200.A61 GeneralPrinciplesandResponsibilities Insuchcases,inadditiontocomplyingwitheachoftheAU-Csectionsrelevanttotheaudit,itmaybenecessaryfortheauditortoperformadditionalauditproceduresinordertocomplywiththeotherauditingstandards.ConsiderationsSpecictoAuditsofGovernmentalEntitiesGAASarerelevanttonancialstatementauditsofgovernmentalen-tities.Theauditor'sresponsibilities,however,maybeaffectedbylaw,regula-tion,orotherauthority(suchasgovernmentpolicyrequirementsorresolutionsofthelegislature),whichmayencompassabroaderscopethananauditof-nancialstatementsinaccordancewithGAAS.TheseadditionalresponsibilitiesarenotaddressedinGAAS.GovernmentAuditingStandardsarerelevantforengagementstoauditU.S.governmententities,andwhenrequiredbylaw,reg-ulation,contract,orgrantagreement.TheappendixtoGovernmentAuditingincludesalistingofsomeofthelaws,regulations,andguidelinesthatrequireuseofGovernmentAuditingStandardsContentsofGAAS(Ref:par..21)Inadditiontoobjectivesandrequirements,anAU-Csectioncontainsrelatedguidanceintheformofapplicationandotherexplanatorymaterial.ItmayalsocontainintroductorymaterialthatprovidescontextrelevanttoaproperunderstandingoftheAU-Csectionanddenitions.TheentiretextofanAU-Csection,therefore,isrelevanttoanunderstandingoftheobjectivesstatedinanAU-CsectionandtheproperapplicationoftherequirementsofanAU-CWhennecessary,theapplicationandotherexplanatorymaterialpro-videsfurtherexplanationoftherequirementsofanAU-Csectionandguidanceforcarryingthemout.Inparticular,itmayexplainmorepreciselywhatarequirementmeansorisintendedtocover.includeexamplesofproceduresthatmaybeappropriateinthecircumstances.Althoughsuchguidancedoesnotinitselfimposearequirement,itisrelevanttotheproperapplicationoftherequirementsofanAU-Csection.Theauditorisrequiredbyparagraph.21tounderstandtheapplicationandotherexplanatorymaterial;howtheauditorappliestheguidanceintheengagementdependsontheexerciseofprofessionaljudgmentinthecircumstancesconsistentwiththeobjectiveoftheAU-Csection.Thewords"may,""might,"and"could"areusedtodescribetheseactionsandprocedures.TheapplicationandotherexplanatorymaterialmayalsoprovidebackgroundinformationonmattersaddressedinanAU-Csection.Appendixesformpartoftheapplicationandotherexplanatoryma-terial.ThepurposeandintendeduseofanappendixareexplainedinthebodyoftherelatedAU-Csectionorwithinthetitleandintroductionoftheappendixitself.Introductorymaterialmayinclude,asneeded,suchmattersasex-planationofthefollowing:ThepurposeandscopeoftheAU-Csection,includinghowtheAU-CsectionrelatestootherAU-Csections.ThesubjectmatteroftheAU-Csection.TherespectiveresponsibilitiesoftheauditorandothersregardingthesubjectmatteroftheAU-Csection.ThecontextinwhichtheAU-Csectionisset. AU-C§200.A62©2020,AICPA OverallObjectivesoftheIndependentAuditor AnAU-Csectionmayinclude,inaseparatesectionunderthehead-ing"Denitions,"adescriptionofthemeaningsattributedtocertaintermsforpurposesofGAAS.TheseareprovidedtoassistintheconsistentapplicationandinterpretationofGAAS,andarenotintendedtooverridedenitionsthatmaybeestablishedforotherpurposes,whetherinlaw,regulation,orotherwise.Unlessotherwiseindicated,thosetermswillcarrythesamemeaningsthrough-outGAAS.Whenappropriate,additionalconsiderationsspecictoauditsofsmaller,lesscomplexentitiesandgovernmentalentitiesareincludedwithintheapplicationandotherexplanatorymaterialofanAU-Csection.Thesead-ditionalconsiderationsassistintheapplicationoftherequirementsofGAASintheauditofsuchentities.Theydonot,however,limitorreducetherespon-sibilityoftheauditortoapplyandcomplywiththerequirementsofGAAS.ConsiderationsSpecictoAuditsofSmaller,LessComplexEntitiesForpurposesofspecifyingadditionalconsiderationstoauditsofsmaller,lesscomplexentities,asmaller,lesscomplexentityreferstoanentitythattypicallypossessesqualitativecharacteristics,suchasthefollowing: a. Concentrationofownershipandmanagementinasmallnumberofindividuals;and Oneormoreofthefollowing:i.Straightforwardoruncomplicatedtransactionsii.Simplerecordkeepingiii.Fewlinesofbusinessandfewproductswithinbusinessiv.Fewinternalcontrolsv.Fewlevelsofmanagementwithresponsibilityforabroadrangeofcontrolsvi.Fewpersonnel,manyhavingawiderangeofdutiesThesequalitativecharacteristicsarenotexhaustive,theyarenotexclusivetosmaller,lesscomplexentities,andsmaller,lesscomplexentitiesdonotneces-sarilydisplayallofthesecharacteristics.GAASrefertotheproprietorofasmallerentitywhoisinvolvedinrunningtheentityonaday-to-daybasisastheowner-managerConsiderationsSpecictoGovernmentalEntitiesConsiderationsspecictogovernmentalentitiesmayalsobeapplica-bletonongovernmentalentitiesthatreceivegovernmentawards.Inauditsofgovernmentalentities,theconsiderationsspecictoauditsofsmaller,lesscom-plexentitiesmaynotapply,evenifthegovernmentalentityhasfewemployees,simpleoperations,orarelativelysmallbudget,becausesmallgovernmentalen-tities(1)mayhavecomplextransactionswithfederalandstategovernments,(2)arerequiredtocomplywithlaws,regulations,policies,andsystemsdeter-minedbyahigherlevelofgovernment,and(3)aresubjecttoadditionalpublicexpectationsofaccountabilityandtransparency.ObjectivesStatedinIndividualAU-CSections(Ref:par..23)EachAU-Csectioncontainsoneormoreobjectivesthatprovidealinkbetweentherequirementsandtheoverallobjectivesoftheauditor.TheobjectivesinindividualAU-CsectionsservetofocustheauditoronthedesiredoutcomeoftheAU-Csection,whilebeingspecicenoughtoassisttheauditor ©2020,AICPAAU-C§200.A72 GeneralPrinciplesandResponsibilities understandingwhatneedstobeaccomplishedand,whenneces-sary,theappropriatemeansofdoingso;anddecidingwhethermoreneedstobedonetoachievetheobjectivesintheparticularcircumstancesoftheaudit.Objectivesaretobeunderstoodinthecontextoftheoverallobjectivesoftheauditorstatedinparagraph.12.Aswiththeoverallobjectivesoftheauditor,theabilitytoachieveanindividualobjectiveisequallysubjecttotheinherentlimitationsofanaudit.Inusingtheobjectives,theauditorisrequiredtoconsidertheinter-relationshipsamongtheAU-Csections.Thisisbecause,asindicatedinpara-graph.A58,theAU-Csectionsinsomecasesaddressgeneralresponsibilitiesandinothersaddresstheapplicationofthoseresponsibilitiestospecictopics.Forexample,thissectionrequirestheauditortoadoptanattitudeofprofes-sionalskepticism;thisisnecessaryinallaspectsofplanningandperforminganauditbutisnotrepeatedasarequirementofeachAU-Csection.Atamoredetailedlevel,section315andsection330contain,amongotherthings,objec-tivesandrequirementsthataddresstheauditor'sresponsibilitiestoidentifyandassesstherisksofmaterialmisstatementandtodesignandperformfur-therauditprocedurestorespondtothoseassessedrisks,respectively;theseobjectivesandrequirementsapplythroughouttheaudit.AnAU-Csectionad-dressingspecicaspectsoftheauditmayexpandonhowtheobjectivesandrequirementsofotherAU-CsectionsaretobeappliedregardingthesubjectofthatAU-Csection,butdoesnotrepeatthoseobjectivesandrequirements.Forexample,section540,AuditingAccountingEstimates,IncludingFairValueAccountingEstimatesandRelatedDisclosures,expandsonhowtheobjectivesandrequirementsofsection315andsection330aretobeappliedregardingthesubjectofsection540,butsection540doesnotrepeatthoseobjectivesandrequirements.Thus,inachievingtheobjectivestatedinsection540,theauditorconsiderstheobjectivesandrequirementsofotherrelevantAU-Csections.UseofObjectivestoDetermineNeedforAdditionalAuditProcedures(Ref:par.TherequirementsofGAASaredesignedtoenabletheauditortoachievetheobjectivesspeciedinGAAS,andtherebytheoverallobjectivesoftheauditor.TheproperapplicationoftherequirementsofGAASbytheauditoristhereforeexpectedtoprovideasufcientbasisfortheauditor'sachievementoftheobjectives.However,becausethecircumstancesofauditengagementsvarywidelyandallsuchcircumstancescannotbeanticipatedinGAAS,theauditorisresponsiblefordeterminingtheauditproceduresnecessarytofullltherequirementsofGAASandtoachievetheobjectives.Inthecircumstancesofanengagement,theremaybeparticularmattersthatrequiretheauditortoperformauditproceduresinadditiontothoserequiredbyGAAStomeettheobjectivesspeciedinGAAS.UseofObjectivestoEvaluateWhetherSufcientAppropriateAuditEvidenceHasBeenObtained(Ref:par..23b)Theauditorisrequiredbyparagraph.23tousetheobjectivesstatedintherelevantAU-Csectionstoevaluatewhethersufcientappropriateauditevidencehasbeenobtainedinthecontextoftheoverallobjectivesoftheaudi-tor.If,asaresult,theauditorconcludesthattheauditevidenceisnotsufcientandappropriate,thentheauditormayfollowoneormoreofthefollowingap-proachestomeetingtherequirementofparagraph.23Evaluatewhetherfurtherrelevantauditevidencehasbeen,orwillbe,obtainedasaresultofcomplyingwithotherAU-Csections AU-C§200.A73©2020,AICPA OverallObjectivesoftheIndependentAuditor105 €Extendtheworkperformedinapplyingoneormorerequirements€PerformotherproceduresjudgedbytheauditortobenecessaryinthecircumstancesWhennoneoftheprecedingisexpectedtobepracticalorpossibleinthecir-cumstances,theauditorwillnotbeabletoobtainsufcientappropriateauditevidenceandisrequiredbyGAAStodeterminetheeffectontheauditor'sreportorontheauditor'sabilitytocompletetheengagement.ComplyingWithRelevantRequirementsRelevantRequirements(Ref:par..24).A77Insomecases,anAU-Csection(andthereforeallofitsrequirements)maynotberelevantinthecircumstances.Forexample,ifanentitydoesnothaveaninternalauditfunction,nothinginsection610,UsingtheWorkofIn-ternalAuditors,isrelevant.[Asamended,effectiveforauditsofnancialstate-mentsforperiodsendingonorafterDecember15,2014,bySASNo.128.].A78WithinarelevantAU-Csection,theremaybeconditionalrequire-ments.Sucharequirementisrelevantwhenthecircumstancesenvisionedintherequirementapplyandtheconditionexists.Ingeneral,theconditionalityofarequirementwilleitherbeexplicitorimplicit,forexample:€Therequirementtomodifytheauditor'sopinionifthereisalim-itationofscope18representsanexplicitconditionalrequirement.€Therequirementtocommunicatesignicantdecienciesandma-terialweaknessesininternalcontrolidentiedduringtheaudittomanagementandthosechargedwithgovernance,19whichde-pendsontheexistenceandidenticationofsuchdeciencies,rep-resentsanimplicitconditionalrequirement.Insomecases,arequirementmaybeexpressedasbeingconditionalonappli-cablelaworregulation.Forexample,theauditormayberequiredtowithdrawfromtheauditengagement,whenwithdrawalispossibleunderapplicablelaworregulation,ortheauditormayberequiredtoperformacertainaction,un-lessprohibitedbylaworregulation.Dependingonthejurisdiction,thelegalorregulatorypermissionorprohibitionmaybeexplicitorimplicit.PresumptivelyMandatoryRequirements(Ref:par..25).A79IfanAU-Csectionprovidesthataprocedureoractionisonethattheauditorshouldconsider,considerationoftheprocedureoractionispresump-tivelyrequired.Whethertheauditorperformstheprocedureoractionisbasedupontheoutcomeoftheauditor'sconsiderationandtheauditor'sprofessionaljudgment.DepartureFromaRequirement(Ref:par..26).A80Section230establishesdocumentationrequirementsinthoseexcep-tionalcircumstanceswhentheauditordepartsfromarelevantrequirement.20GAASdonotcallforcompliancewitharequirementthatisnotrelevantinthecircumstancesoftheaudit. 18Seesection705,ModicationstotheOpinionintheIndependentAuditor'sReport.19Paragraph.11ofsection265.20Paragraph.13ofsection230. ©2020,AICPAAU-C§200.A80 106GeneralPrinciplesandResponsibilities InterpretivePublications(Ref:par..27).A81Interpretivepublicationsarenotauditingstandards.InterpretivepublicationsarerecommendationsontheapplicationofGAASinspeciccir-cumstances,includingengagementsforentitiesinspecializedindustries.AninterpretivepublicationisissuedundertheauthorityoftheASBafterallASBmembershavebeenprovidedanopportunitytoconsiderandcommentonwhethertheproposedinterpretivepublicationisconsistentwithGAAS.Audit-inginterpretationsofGAASareincludedinAU-Csections.AICPAAuditandAccountingGuidesandauditingSOPsarelistedinAU-CappendixD,AICPAAuditandAccountingGuidesandStatementsofPosition.OtherAuditingPublications(Ref:par..28).A82Otherauditingpublicationshavenoauthoritativestatus;however,theymayhelptheauditorunderstandandapplyGAAS.Theauditorisnotexpectedtobeawareofthefullbodyofotherauditingpublications..A83Althoughtheauditordeterminestherelevanceofthesepublicationsinaccordancewithparagraph.28,theauditormaypresumethatotherauditingpublicationspublishedbytheAICPAthathavebeenreviewedbytheAICPAAuditandAttestStandardsstaffareappropriate.Theseotherauditingpubli-cationsarelistedinAU-CappendixF,OtherAuditingPublications..A84IndeterminingwhetheranotherauditingpublicationthathasnotbeenreviewedbytheAICPAAuditandAttestStandardsstaffisappropriatetothecircumstancesoftheaudit,theauditormayconsiderthedegreetowhichthepublicationisrecognizedasbeinghelpfulinunderstandingandapplyingGAASandthedegreetowhichthepublisherorauthorisrecognizedasanauthorityinauditingmatters.[Revised,February2017,tobetterreecttheAICPACouncilResolutiondesignatingthePCAOBtopromulgatetechnicalstandards.]FailuretoAchieveanObjective(Ref:par..29).A85Whetheranobjectivehasbeenachievedisamatterfortheauditor'sprofessionaljudgment.Thatjudgmenttakesaccountoftheresultsofauditpro-ceduresperformedincomplyingwiththerequirementsofGAAS,andtheau-ditor'sevaluationofwhethersufcientappropriateauditevidencehasbeenobtainedandwhethermoreneedstobedoneintheparticularcircumstancesoftheaudittoachievetheobjectivesstatedinGAAS.Accordingly,circumstancesthatmaygiverisetoafailuretoachieveanobjectiveincludethosethat€preventtheauditorfromcomplyingwiththerelevantrequire-mentsofanAU-Csection.€resultinitnotbeingpracticableorpossiblefortheauditortocarryouttheadditionalauditproceduresorobtainfurtherauditevi-denceasdeterminednecessaryfromtheuseoftheobjectivesinaccordancewithparagraph.23;forexample,duetoalimitationintheavailableauditevidence..A86Auditdocumentationthatmeetstherequirementsofsection230andthespecicdocumentationrequirementsofotherrelevantAU-Csectionspro-videsevidenceoftheauditor'sbasisforaconclusionabouttheachievementoftheoverallobjectivesoftheauditor.Althoughitisunnecessaryfortheau-ditortodocumentseparately(asinachecklist,forexample)thatindividualobjectiveshavebeenachieved,thedocumentationofafailuretoachieveanob-jectiveassiststheauditor'sevaluationofwhethersuchafailurehaspreventedtheauditorfromachievingtheoverallobjectivesoftheauditor. AU-C§200.A81©2020,AICPA

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