The-Accountant-Jul-Aug-2017

Governance
In view of the high profile accounting
scandals in recent times, the role
and responsibilities of auditors has
been questioned. In some instances
auditors of companies listed in NSE,
were alleged to have lacked sufficient
understanding of the client’s business,
risks and exposures. This ultimately caused
them to overlook the effects of clients’
aggressive accounting practices.
ISA 300 Planning an Audit of
Financial Statements requires that an
auditor plan their audit to reduce audit risk
to an acceptably low level. Audit risk is the
risk that an auditor issues an inappropriate
audit opinion; for example the auditor
issues unqualified audit opinion when
the financial statements are in fact
materially misstated. The planning stage
involves determining the audit strategy
as well as identifying the nature and the
timing of the procedures to be performed.
This is done to optimize efficiency
and effectiveness when conducting an
audit. Efficiency refers to the amount
of time spent gathering audit evidence.
Effectiveness refers to the minimization
of audit risk.
A well-planned audit will ensure; an
understanding of the client, identifying
risk factors, developing an audit strategy,
and assessing materiality information.
This information impacts the decisionmaking
process of the users of the
financial statements. Audit strategy sets
the scope, timing, and direction of the
audit and provides the basis for developing
a detailed audit plan execution stage
detailed testing of controls and substantive
testing of transactions and accounts
reporting stage, evaluating the results of
the detailed testing in light of the auditor’s
understanding of their client. It also forms
an opinion on the fair presentation of the
client’s financial statements.
ISA 315 requires auditors to obtain
Business Risk Vs
Inherent Risk
By CPA Kipkoech Victor, kipkoechvictor@gmail.com
24 JULY - AUGUST 2017