The Audit of Financial Statements SA 200A

Objective of an audit
3.1 As per this SA 200 A, objective is to express an opinion on financial statements
by the auditor. Opinion helps the users of the financial statements to determine the
true and fir view of the financial statements.

Auditor’s opinion and future viability

3.2 This SA clarifies that auditor’s opinion on financial statements is not an assurance
on the future viability of the enterprise nor it is an assurance on efficiency or
effectiveness of the management in conducting the business of an enterprise.

Responsibility of preparing the financial statements

3.3 Responsibility of preparation of financial statements is of the management and not
of the auditor. Auditor’s responsibility is to express an opinion on financial statements
prepared by the management.
Further maintenance of accounting records and control and selection of accounting
policies is the sole responsibility of the management.

How the auditor should determine the scope and extent of auditing
3.4 The auditor should consider the following:
 Terms of engagements.
 Requirements of law: If the audit client is a company registered under the
Companies Act, 1956, requirement of Schedule VI is to be compiled with. If it
is insurance company, then Insurance Act, 1938 and IRDA requirements and
so on.
 Pronouncements of ICAI: Accounting Standards, Guidance Notes on various
accounting subjects and Auditing Standards.

Can terms of engagements restrict the scope of audit?

3.5 Terms of engagements prescribing the scope of the audit are determined by the
appointing authority of the auditor. However, the appointing authority cannot restrict
the scope of an audit in relation to matters prescribed by law and any pronouncements
on the subject by the ICAI.

How audit should be organised?

3.6 Audit should be organised in such a way that:
 It covers all aspect of enterprise.
 It ensures that accounting records on which basis financial statements are
prepared are reliable and sufficient.
 Statutory requirements of disclosure are compile with in preparation of
financial statements.
3.6-1- How to assess the reliability and sufficiency of accounting records –
The same can be done by:
 Study and evaluation of accounting system and internal control.
 Carrying out test checking, and enquiries and confirmation, etc, of accounting
records and balances.
 Assessment of accounting policies followed.

Forming an opinion by the auditor

3.7 Auditor has to report whether the financial statements reflects the true and fair
view of the financial position and operating result of the enterprise. For forming such
an opinion auditor follows a procedure to satisfy himself.

Limitation faced by the auditor:

3.8 While forming an opinion by following certain audit procedures auditor faces
certain limitations, which are as under;
 High and uncontrollable volume of transaction – for example, if ‘A’ an
auditor, conducts the audit of Bank of Baroda having more than 2000
branches and billions of transactions, it will not be possible for him to
check the accuracy of all the transactions. Therefore, he has to conduct
Test Check.
 Limitation of any system of internal control.
 Lack of technical knowledge of the enterprise’s business.

Does audit ensure that there are no frauds or errors?

3.9 SA 200 A states that audit cannot ensure that there are no frauds and error in
audited financial statements. In fact the objective of the audit is not o detect the fraud
and error.

Technical expertness and auditor

Auditor should not perform the audit of the area, which is of technical nature and is
outside his competence.

Auditor’s report and constraints

There may be certain constraints, and problems due to which the auditor cannot
express unqualified opinion on the financial statements. Those constraints/problems
should be set out in his report.