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ASA701 Auditing Standards

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Added on  2020-03-28

ASA701 Auditing Standards

   Added on 2020-03-28

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Running head: ASA701 AUDITING STANDARDS1ASA701 Auditing Standards- A Case of ABC Learning CentreNameInstitutional AffiliationDate
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ASA701 AUDITING STANDARDS2Executive SummaryThis report provides an analysis of the new auditing standard ASA701 and ASA570 (ISA570) in the wake of thefinancial crisis while using the collapse of ABC Learning Centre as the case study. The report draws attention to issues of auditing misconduct experience during ABC Learning Centre’s collapse. After relating the various concerns that necessitated the developmentof ASA701, the report identifies key audit matters that ABC Learning Centre would have been obligated to disclose had these standards been applied prior to the company’s collapse. While putting the ASA701 and the ABC Learning Centre case into consideration, the report provides recommendations and an evaluation of the auditing standards’ relevance.
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ASA701 AUDITING STANDARDS3Table of ContentsExecutive Summary.....................................................................................................................................2Introduction...............................................................................................................................................4Necessity of Auditing according to ISA 701 Key Audit Matters (KAM)...............................................4Auditing issues...........................................................................................................................................6Development of ISA 701............................................................................................................................8Key Audit Matters.....................................................................................................................................9Recommendations...................................................................................................................................10Conclusion................................................................................................................................................11References................................................................................................................................................12
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ASA701 AUDITING STANDARDS4IntroductionASA701 defines key audit matters (KAM) as the financial reporting aspects that an auditor in his professional capacity and judgment considers crucial while conducting audits of financial statements for a particular fiscal year (Azim, 2013). In most cases, KAM are determined based on previous concerns and suggestions provided by the current company governance (Cordos, and Fülöpa, 2015). Recent studies have defined ISA 701 as a mandatory audit documentary for complete financial statements sets of the given entities (Champlain, 2003).Usually, ISA70 is applicable in situations whereby the law or available regulatory platform expects the auditor to communicate KAM within his or her report (Xu et al., 2011). Regulators inmost American nations need this kind of communication of KAM in their auditor’s report. Auditors of public sector entities are also expected to communicate KAM during thepreparation of their audit reports (Azim, 2013). The importance of communicatingkey audit matters in the auditor’s report is enhanced by the collapse of ABC Learning Centers.Necessity of Auditing according to ISA 701 Key Audit Matters (KAM)It is necessary for any firm or organization to perform an audit of their financial statements. Provision of accountability is among the reasons that necessitate auditing. As per ISA 701 when thebusiness grows large, there is need to keep track of who is accountable for the different operations being conducted. This is necessary especially when stockholders are onboard, and accountability is highly required. At such a point, managers are expected to ensure that they are updatedin order to provide more accurate reports (Chapman, 2004).Provision of reliability is another reason as to why there is need to perform auditing. Financial institutions, the tax office, and management will always attain significant benefits through conducting anauditin their financial statements. With a self-governing financial audit,
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