Nature, Objective and Scope of Audit
Domain 1 tests whether you can state the purpose of a statutory audit in the words of SA 200 and separate it from investigation, review and certification work.
Objective and assurance
The auditor's objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report in accordance with the auditor's findings. Reasonable assurance is high but not absolute: evidence is persuasive rather than conclusive, sampling is used, judgement is applied, controls can be overridden by collusion, and fraud may involve deliberately concealed documents.
Scope
Scope is fixed by the statute, the engagement letter under SA 210 and the Standards on Auditing. The auditor does not guarantee future viability of the entity or the efficiency of management, and the audit does not relieve management of responsibility for the financial statements or for internal control. Fraud-related duties are specific: SA 240 for procedures, and Section 143(12) with Rule 13 of the Companies (Audit and Auditors) Rules, 2014 for reporting.
Worked example
A promoter asks the auditor to certify that 'no fraud exists in the company'. Reasoning: the audit opinion is on the financial statements and gives reasonable, not absolute, assurance; SA 240 requires the auditor to identify and assess fraud risk and make enquiries; Section 143(12) prescribes a specific reporting route when fraud is detected. A blanket no-fraud certificate exceeds scope and creates assurance that cannot be supported, so it should be declined.
Traps
- Writing that the auditor 'guarantees the accounts are correct' or gives absolute assurance.
- Treating the audit as an investigation; investigation is a separate, wider engagement.
- Forgetting that management remains responsible for financial statements and internal control.
- Ignoring that some misstatements may remain undetected because of inherent limitations.