Help me solve an auditing question.

The main objective of an audit is to give a true and fair view of a company's state of affairs at a given date. Preparation of the audit report is the last step of an audit cycle. The report renders the auditor's opinion about the truth and fairness of the financial statements.

Generally, when the auditor does not receive all information and explanations that he deems necessary for the completion of the audit, limitation of scope arises. The auditor can, therefore, not give an objective conclusion of his analysis with regard to the company's economic status. Management may contribute to the auditor's limitation by refusing to render all information required. Destruction of accounting records also limits the auditor's capability to deliver a judgment.

Before issuing a modified report -- qualified or disclaimer of opinion -- the auditor must evaluate the materiality and fundamentality of the limitation. Limitation of scope is material if the inadequacy may alter the view given by the financial statements on the economic status of the firm. Limitation of scope is fundamental when the inadequacy is crucial and can totally alter the interpretation of the financial statements or even make them meaningless.

 Dear Leez,

I Appreciate your conviction to chalk out this issue. Let me table my opinion and garnish it with

my available facts. Well, you see that the assurance standards and the companies act are the dual

set of legislation within which an auditor is supposed to act. But, on introspection (as i had discovered)

will will realise that at various footings a consensus cant be arrived between the two.

factual findings of SA:SA 210 (REVISED)
AGREEING THE TERMS OF AUDIT ENGAGEMENTS

a)Limitation on Scope Prior to Audit Engagement Acceptance
PARA-7. If management or those charged with governance impose a limitation on the scope of the
auditor’s work in the terms of a proposed audit engagement such that the auditor believes the limitation
will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept
such a limited engagement as an audit engagement, unless required by law or regulation to do so.

b)Acceptance of a Change in the Terms of the Audit Engagement
PARA-14. The auditor shall not agree to a change in the terms of the audit engagement where there is no
reasonable justification for doing so. (Ref: Para. A28-A30)
15. If, prior to completing the audit engagement, the auditor is requested to change the audit
engagement to an engagement that conveys a lower level of assurance, the auditor shall determine
whether there is reasonable justification for doing so. (Ref: Para. A31-A32)
16. If the terms of the audit engagement are changed, the auditor and management shall agree on and
record the new terms of the engagement in an engagement letter or other suitable form of written agreement.
17. If the auditor is unable to agree to a change of the terms of the audit engagement and is not
permitted by management to continue the original audit engagement, the auditor shall:
(a) Withdraw from the audit engagement where possible under applicable law or regulation; and
(b) Determine whether there is any obligation, either contractual or otherwise, to report the
circumstances to other parties, such as those charged with governance, owners or regulators.

NOW, SECTION 227 CONFERS CERTAIN RIGHT TO AUDITOR WHICH ARE PREDOMINANTLY

UNDISPUTABLE AND ABSOLUTE.

THE ANSWER TO YOUR QUESTION IS ASSURANCE STANDARDS ARE RELATED GUIDING LIGHT TO OUR INSTITUTES MEMBERS WHEREAS THE COMPANIES ACT DISCREETLY USE THE WORD AUDITORS.  A REDUNDANT SECTION 224 CLARIFIES THE INTENTION OF THE ACT, WHICH NOT ONLY INCLUDES THE ICAI BUT OTHERS TOO. (THOUGH TYPICALLY REDUNDANT NOW)

IN OTHER WORD THE ACT, DIDNT WAIT FOR ICAI TO INTRODUCE THE ASSURANCE STANDARDS RATHER IT PLACED THE WEAPONS IN THE AUDITORS ARMOUR AT A PRIMITIVE STAGE ITSELF.

HOPE THAT HELPS.

CHEERS

Arijit Bhattacharjee

superb analysis of question.....I never had gone through such descripttive & step by step answer before.....

thanks arijit

HEY CAN ANY 1 TELL ME WHAT IS 'SYSTEM AUDIT'???AND HOW I WILL ANALYSE IT AS A AUDITOR....THIS IS A QUESTION WHICH WAS ASKED IN INTERVIEW...SO HELP PLZZZ