Egyptian Auditing Standards and ISA
Egyptian Auditing Standards and ISA tests the audit pronouncements issued by the ESAA and their alignment with the ISA issued by the IAASB. The exam checks the auditor's responsibilities under ISA 200, quality management under ISQM 1 and ISQM 2, documentation, communication with those charged with governance, and the correct reporting decision.
Standards and quality management
- Egyptian Auditing Standards adopt ISA, so the same objectives, requirements and application material apply, with Egyptian additions where the ESAA specifies them.
- ISQM 1 requires a firm-level system of quality management addressing governance, engagement performance, resources, information and communication, and monitoring and remediation.
- ISQM 2 requires an engagement quality review for audits of listed entities and other engagements for which the firm identifies a need.
- ISA 230 requires audit documentation sufficient to enable an experienced auditor with no previous connection to the audit to understand the work performed, evidence obtained and conclusions reached.
Reporting decisions
- ISA 700 governs the unmodified report; ISA 701 requires key audit matters for listed entities.
- ISA 705 governs modifications: qualified opinion when misstatements or scope limitations are material but not pervasive; adverse when material and pervasive; disclaimer when the inability to obtain evidence is material and pervasive.
- ISA 706 governs emphasis of matter and other matter paragraphs; these do not modify the opinion.
Worked example
The auditor cannot obtain evidence about a subsidiary that represents 15% of total assets. The possible effect is material but not pervasive. The auditor concludes that a qualified opinion is appropriate, not a disclaimer. The basis for qualified opinion paragraph describes the limitation, and the opinion paragraph states that, except for the possible effects of the matter, the financial statements give a true and fair view. If the subsidiary represented 85% of total assets and the auditor could not obtain any evidence, the effect would be material and pervasive and a disclaimer would be required.
Traps that cost marks
- Using an emphasis of matter paragraph to fix a material misstatement; it cannot substitute for a modification.
- Issuing a disclaimer when the matter is material but not pervasive.
- Failing to document the engagement quality review or the resolution of differences of opinion.
- Omitting key audit matters for a listed entity, or describing them as a modification.