Important Elements of Auditing Standards in Australia

Running head: AUDITING
Auditing
Name of the Student:
Name of the University:
Authors Note:

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Contents
Introduction:....................................................................................................................................2
Part A:..............................................................................................................................................2
Sub part (i):..................................................................................................................................2
Sub part (ii):.................................................................................................................................3
Sub part (iii):................................................................................................................................5
Part B:..............................................................................................................................................6
Sub part (i):..................................................................................................................................6
Sub part (ii):.................................................................................................................................7
References:....................................................................................................................................10

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Introduction:
The responsibility of formulating and issuing auditing standards for the auditors to be followed
in audit of financial statements in Australia is on Auditing and Assurance Standards Board
(AUASB) in the country. The professional accountants and auditors in the country are obliged to
comply with the guidelines of these auditing standards issued by the AUASB. Taking into
consideration the auditing standards and other pronouncements of AUASB, a brief discussion on
the important elements of auditing associated with the underlying subject matters shall be made
in this document.
Part A:
ASA 102 states that the professional auditors and qualified accountants responsible to conduct
the audit of financial statements must comply with the ethical requirements during the
performance of such audit. Not only that the auditors should also comply with ethical
requirements while discharging the responsibilities and duties in review and assurance
engagements. In order to oblige with the requirements of ASA 102 a qualified auditor must
conduct an audit in accordance with the applicable auditing standards to comply with the ethical
requirements in an audit (Botica Redmayne, 2017).
Sub part (i):
In this case, CWC, a chartered accountants firm, has been appointed as the external auditor of
Elmo Software Limited to conduct the audit of its financial statements for the year ending on 30th
June, 2019. In order to conduct an audit as per the guidelines of AUASB an auditor should
conduct preliminary risk assessment before starting an audit of an entity for the first time.
Preliminary risk assessment of an entity requires an auditor to identify and assess the risk of
material misstatements in an audit of financial statements by conducting a detailed investigation

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into the entity to understand the entity and its environment. ASA 315 provides all relevant
guidelines to be followed by an auditor to understand an entity and its environment to assess the
risk material misstatement (Brown et al., 2019).
In this case, the prior period financial statements of Elmo Software Limited, i.e. financial
statements of 2018 would be useful to the auditor to understand the characteristics of financial
transactions and nature of accounts that the entity deals with. This will help the auditor to
understand the nature of financial transactions as well as the vulnerable areas in accounting such
as complex provisions, depreciation calculation and other such computations. Further the auditor
should also ask for previous year audit report along with working papers of the auditors to
examine whether there are any particular elements to the entity that affects the overall risk
profile of the entity in terms of audit of the financial statements of the entity (Cahill, 2015).
Further the nature of transactions and accounts balances from the previous year financial
statements and audit report will help the auditor to understand the entity and its environment
better. The auditor can reconcile the nature of transactions and accounts balances of the company
with the nature of activities of the company. Thus, a detailed verification and inspection of the
previous year financial reports shall be helpful to the auditor of CWC for preliminary risk
assessment of Elmo Software Limited (Farrar, 2017).
Sub part (ii):
The importance of both substantive and analytical procedures in an audit of financial statements
is huge. The quality of an audit to a large extent is dependent on the ability of an auditor to
effectively use analytical procedures to identify the specific areas within an entity requiring
special emphasis compared to other areas. Thus, analytical procedures help an auditor to identify
specific areas within an entity and financial statements requiring special attention whereas