ISA 200


  • Transactions, items, events will be material in financial statements if their omission, misstatement, misclassification or non-disclosure would distort the view given by the financial statements and would responsibly influence the understanding and economic decisions of users.
  • Materiality, however, is not capable of general mathematical definition since it involves qualitative as well as quantitative considerations.


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.

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 Skepticism:

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.

Reasonable Assurance:

In the context of an audit of financial statements, a high, but not absolute, level of assurance.

  1. Positive Assurance
  2. Negative Assurance

True and Fair View:

Auditor shall state in audit report whether the financial statements give a “true and fair view”

or “present fairly, in all material respects” (both are equilents terms)

By “true” is meant that financial statements are:

  1. Free from material misstatement
  2. Based on verifiable evidence

By “fair” is meant that the financial statements are:

  1. Objectively presented
  2. Free from management bias
  3. Relevant to the needs of users

Those Charged With Governance:

The person(s) or organization(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process. For some entities in some jurisdictions, those charged with governance may include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner- manager.

Ethical Requirements Relating to an Audit:

The auditor is subject to relevant ethical requirements, including those pertaining to independence, relating to financial statement audit engagements.

The fundamental principles with which the auditor is required to comply are:

  • Integrity;
  • Objectivity;
  • Professional competence and due care;
  • Confidentiality; and
  • Professional behavior

The Audit Process:

  1. Engagement letter Auditor should send all clients an engagement letter setting out the auditor’s duties and responsibilities.
  2. Planning Planning and controlling audit work is essential to performing work to the required high standard of skill and care.
  3. Ascertain accounting systems auditors enquire into and ascertain the client’s system of accounting and internal controls in order to understand how accounting data is prepared and to gain an impression as to whether systems are reliable.
  4. Test controls and transactions Controls must be tested if the auditor intends to rely on them. Records must be tested to obtain evidence that they are a reliable basis for the preparation of accounts.
  5. Verify assets and liabilities Figures appearing in financial statements must be verified.
  6. Review financial statements To see if, overall, they appear sensible.
  7. Obtain management representations The auditor asks management to confirm formally the truth and fairness of certain aspects of financial statements.
  8. Sign auditor’s report After the directors have approved the accounts.

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