| 3. | The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. This is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. In the case of most general purpose frameworks, that opinion is on whether the financial statements are presented fairly, in all material respects, or give a true and fair view in accordance with the framework. An audit conducted in accordance with ISAs (UK and Ireland) and relevant ethical requirements enables the auditor to form that opinion. (Ref: Para. A1) |
| 4. | The financial statements subject to audit are those of the entity, prepared by management of the entity with oversight from those charged with governance1c. ISAs (UK and Ireland) do not impose responsibilities on management or those charged with governance and do not override laws and regulations that govern their responsibilities. However, an audit in accordance with ISAs (UK and Ireland) is conducted on the premise that management and, where appropriate, those charged with governance have acknowledged certain responsibilities that are fundamental to the conduct of the audit. The audit of the financial statements does not relieve management or those charged with governance of their responsibilities. (Ref: Para. A2-A11) |
| 5. | As the basis for the auditor's opinion, ISAs (UK and Ireland) require the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Reasonable assurance is a high level of assurance. It is obtained when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk (that is, the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated) to an acceptably low level. However, reasonable assurance is not an absolute level of assurance, because there are inherent limitations of an audit which result in most of the audit evidence on which the auditor draws conclusions and bases the auditor's opinion being persuasive rather than conclusive. (Ref: Para. A28-A52) |
| 6. | The concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements.1 In general, misstatements, including omissions, are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Judgments about materiality are made in the light of surrounding circumstances, and are affected by the auditor's perception of the financial information needs of users of the financial statements, and by the size or nature of a misstatement, or a combination of both. The auditor's opinion deals with the financial statements as a whole and therefore the auditor is not responsible for the detection of misstatements that are not material to the financial statements as a whole. |
| 7. | The ISAs (UK and Ireland) contain objectives, requirements and application and other explanatory material that are designed to support the auditor in obtaining reasonable assurance. The ISAs (UK and Ireland) require that the auditor exercise professional judgment and maintain professional skepticism throughout the planning and performance of the audit and, among other things: |
| Identify and assess risks of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, including the entity's internal control. |
| Obtain sufficient appropriate audit evidence about whether material misstatements exist, through designing and implementing appropriate responses to the assessed risks. |
| Form an opinion on the financial statements based on conclusions drawn from the audit evidence obtained. |
| 8. | The form of opinion expressed by the auditor will depend upon the applicable financial reporting framework and any applicable law or regulation. (Ref: Para. A12-A13) |
| 9. | The auditor may also have certain other communication and reporting responsibilities to users, management, those charged with governance, or parties outside the entity, in relation to matters arising from the audit. These may be established by the ISAs (UK and Ireland) or by applicable law or regulation.2 |
| 1c In the UK and Ireland, those charged with governance are responsible for the preparation of the financial statements. For corporate entities, directors have a collective responsibility; those charged with governance of other types of entity may also have a collective responsibility established in applicable law or regulation or under the terms of their appointment. |
| 1 ISA (UK and Ireland) 320, "Materiality in Planning and Performing an Audit" and ISA (UK and Ireland) 450, "Evaluation of Misstatements Identified during the Audit." |
| 2 See, for example, ISA (UK and Ireland) 260, "Communication with Those Charged with Governance;" and paragraph 43 of ISA (UK and Ireland) 240, "The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements." |
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