Auditing and Assurance Standards
This domain tests the Sri Lanka Auditing Standards (SLAuS, adopted from the ISAs by CA Sri Lanka), the ethical code, and - for public sector candidates - the ISSAIs and the National Audit Act No. 19 of 2018 framework that governs the Auditor General.
Core rules
- Audit risk = inherent risk × control risk × detection risk. Detection risk is the auditor's lever, managed through the nature, timing and extent of procedures.
- Materiality: set overall materiality (commonly a percentage of profit before tax, total revenue or total expenditure), performance materiality below it, and a clearly trivial threshold; revise if circumstances change.
- Evidence must be sufficient (quantity) and appropriate (relevance and reliability). External confirmations and inspection outrank inquiry; inquiry alone is never enough.
- Documentation must be assembled on file within 60 days of the report date; retention normally at least five years.
- Opinions: unmodified; qualified (except for) where misstatement is material but not pervasive; adverse where material and pervasive; disclaimer where scope limitation is material and pervasive.
- Going concern (SLAuS 570) and subsequent events (SLAuS 560): adjusting events require adjustment, non-adjusting events require disclosure.
- Public sector: legality and regularity plus performance (value-for-money) audits, reporting to Parliament through the Auditor General under Article 154.
Worked example
Profit before tax is Rs 24 million. Overall materiality at 5% = Rs 1,200,000; performance materiality at 75% = Rs 900,000. An unrecorded liability of Rs 1,500,000 is found. It exceeds overall materiality, so management is asked to adjust; if it refuses, the financial statements are materially misstated and a qualified opinion follows unless the effect is pervasive.
Traps that cost marks
- Confusing "except for" (material, not pervasive) with adverse (pervasive).
- Calling sampling risk a non-sampling error, or vice versa.
- Reusing last year's materiality benchmark without recalculating.