Auditing and Assurance
This domain tests engagement acceptance, risk assessment, evidence, reporting and quality management under the Sri Lanka Auditing Standards (SLAuS), which are based on the ISAs, together with the statutory audit duties in the Companies Act No. 7 of 2007 and the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995.
The audit flow you should be able to narrate
- Acceptance and continuance: independence, competence, ethical clearance, engagement letter.
- Risk assessment (SLAuS 315): understand the entity and its internal control, identify significant risks including management override.
- Response (SLAuS 330): design substantive and, where relevant, tests of controls; more persuasive evidence for higher risk.
- Evidence (SLAuS 500): external evidence outranks internal; inspection of documents outranks inquiry alone.
- Reporting (SLAuS 700/701/705/570): opinion, key audit matters for listed entities, modifications, going-concern disclosure.
- Quality management: firm-level system under SLAuS 1/ISQM 1, engagement quality review for listed audits.
Worked example
Profit before tax is LKR 40 million. Benchmark at 5% gives overall materiality of LKR 2,000,000. Performance materiality at 75% is LKR 1,500,000; the clearly trivial threshold at 5% of materiality is LKR 100,000. Uncorrected misstatements total LKR 1,400,000 - below materiality, but they must still be accumulated, evaluated qualitatively (for example if they flatter a covenant or a bonus target) and communicated to those charged with governance. Concluding "below materiality, ignore" is wrong.
Traps that cost marks
Treating materiality as a single fixed percentage with no judgement; relying on inquiry as sufficient evidence; issuing an unmodified opinion while a material uncertainty on going concern remains undisclosed; forgetting that the auditor reports to shareholders, not to the directors who appointed the firm.