Advanced Audit and Assurance
Advanced Audit and Assurance tests the application of Sri Lanka Auditing Standards (SLAuS) and the Code of Ethics to complex engagements. You must plan a risk-based audit, evaluate evidence, judge going concern and select the right opinion.
Core rules
- Ethics: identify threats - self-interest, self-review, advocacy, familiarity and intimidation - and apply safeguards. Independence covers mind and appearance: fee dependence, long association and non-assurance services are common threats.
- Quality management: firms apply SLSQM 1; engagements apply SLAuS 220. Listed-entity audits require an engagement quality review.
- Risk-based audit: understand the entity and its environment, including internal control; assess risks of material misstatement at financial statement and assertion level; design substantive and test-of-control responses.
- Evidence and judgements: sufficient appropriate evidence for estimates, related parties, going concern and subsequent events. Evaluate management bias, not just arithmetic.
- Reporting: unmodified, qualified, adverse or disclaimer. Use KAM for listed entities; use emphasis of matter or other matter only when not a modification.
Worked example
Inventory of Rs. 200m is stated above its recoverable amount. Management refuses to adjust. The auditor concludes the misstatement is material but not pervasive because inventory is one line and the rest of the financial statements are unaffected. The opinion is qualified: 'except for' the inventory misstatement. If the inventory were 90% of total assets and affected cost of sales, profit and equity, the misstatement would be pervasive and the opinion adverse. If instead the auditor could not obtain evidence about inventory, a material but not pervasive limitation gives a qualified opinion; a pervasive limitation gives a disclaimer.
Traps
- Calling a disclaimer 'except for'; disclaimer wording is 'because of'.
- Confusing adverse (misstatement) with disclaimer (inability to obtain evidence).
- Using KAM to fix a modified opinion.
- Treating a going-concern material uncertainty as automatically a disclaimer.
- Classifying subsequent events as adjusting when they are non-adjusting.
- Relying on a component auditor without evaluating competence and evidence.