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The overall authority of ISAs and how ISAs are applied in individual countries ISAs are designed to be applied in the audit of financial statements and may be applied to the audit of other historical financial information. Each ISA contains the basic principles and procedures to apply to that ISA (identified by bold type in the ISA itself). Other text in the ISA provides guidance on the implementation of the principles. In other words, to apply the ISA, the whole of the text, not simply the parts in bold type, must be read and understood. ISAs are not designed to override the requirements for the audit of entities in individual countries. So if our country did not require an audit of specific entities, then the ISAs would not overrule that requirement. Regarding the detailed requirements of an audit, such as the nature of testing or the issuing of an engagement letter, where our country requirements meet those of the ISA, then the ISA will be used. It is therefore unlikely that our co

Analytical Procedures as substantive evidence ISA 520 states that analytical procedures must be used at the planning stage to identify risks, and at the completion stage of the audit as a final review of the FS. They may also be used at the substantive stage when the auditor is auditing the draft financial statements. Analytical procedures are not just the comparison of one year with another. AP’s can be used in the following ways: • Ratio analysis • Trend analysis • In order to use analytical procedures the following process should be followed: • Create your own expectation of what you think the figure should be • Compare your expectation to the actual figure • – Example 1 create an expectation of payroll costs for the year by taking last year’s cost and inflating for payrise and change in staff numbers – proof in total. – Example 2 – calculate the receivables day ratio and compare it with prior year and credit terms given to customers. If the figure is higher than expected it may i

‘Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements’ ISA 320 para 3 So what really is materiality? (material by nature). • A big amount of money (material by size). • – triggers a threshold – indicates future developments or other significant events – whose disclosure is compulsory Why is materiality important? • show a true and fair view. If financial statements contain a material misstatement they cannot • of material misstatement to an acceptable level. Auditors therefore must design their audit procedures to reduce the risk • before they design their procedures – hence its place in this chapter. This means that auditors must decide on what they mean by ‘material’ What are the implications for the work the auditors do? Auditors will: BUT • Need to examine all items in the financial statements which are material • amounts have not been they will also need to design tests to give assu