Objective of SA 200
SA 200 explains the overall objectives of the independent auditor and sets out the nature and scope of an audit.
It also establishes the auditor’s responsibility to comply with Standards on Auditing (SAs) while performing an audit.
Overall Objectives of the Auditor
The auditor aims to:
- Obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.
- Report on the financial statements in accordance with the auditor’s findings.
Reasonable Assurance
Reasonable assurance means a high, but not absolute, level of assurance.
The auditor achieves reasonable assurance by obtaining sufficient and appropriate audit evidence.
However, reasonable assurance does not guarantee that the auditor will detect all material misstatements.
Inherent Limitations of an Audit
An audit has inherent limitations because:
- Financial reporting involves judgment and estimates.
- Audit procedures are based on sampling, not examination of all information.
- Audit evidence is persuasive, not conclusive.
- Fraud may involve collusion, forgery, or intentional concealment.
Due to these limitations, there is an unavoidable risk that some material misstatements may not be detected.
Scope of an Audit
The auditor conducts an audit in accordance with Standards on Auditing.
The scope of the audit is influenced by:
- Applicable SAs
- Relevant laws and regulations
- Professional judgment of the auditor
Compliance with Standards on Auditing
The auditor shall comply with all relevant Standards on Auditing.
The auditor shall not represent compliance with SAs unless the audit has been conducted in accordance with all applicable SAs.
If the auditor is unable to comply with a relevant SA, the auditor shall:
- Perform alternative procedures, or
- Modify the audit opinion, if required
Professional Judgment
The auditor shall exercise professional judgment throughout the audit.
Professional judgment is necessary in areas such as:
- Planning the audit
- Assessing risks
- Determining materiality
- Evaluating audit evidence
- Forming the audit opinion
Conclusion:
Therefore, SA 200 clearly explains the overall objectives of the independent auditor and the purpose of an audit. Moreover, it guides auditors to follow Standards on Auditing to obtain reasonable assurance. Finally, by applying SA 200 properly, auditors enhance the reliability and credibility of financial statements.