Guide to Using International Standards on Auditing in - IFAC

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<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
The overview is followed by a more detailed discussion of the subject matter, and practical step-by-step
guidance/methodology on how <strong>to</strong> implement the relevant ISAs. This can include some cross-references
<strong>to</strong> the applicable ISAs. While the <strong>Guide</strong> focuses exclusively on the ISAs (other than the 800 series)
that apply <strong>to</strong> audits of his<strong>to</strong>rical financial information, reference is also made <strong>to</strong> the Code of Ethics for
Professional Accountants issued by the <strong>International</strong> Ethics <strong>Standards</strong> Board for Accountants (the IESBA
Code), and the <strong>International</strong> Standard on Quality Control 1 (ISQC 1), Quality Control for Firms that Perform
Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.
• Consider Points
A number of Consider Points are included throughout the <strong>Guide</strong>. These Consider Points provide
practical guidance on audit matters that can easily be overlooked, or where practitioners often have
difficulty understanding and implementing certain concepts.
• Illustrative Case Studies
To demonstrate how the ISAs can be applied in practice, Volume 2 of the <strong>Guide</strong> includes two case
studies. At the end of many chapters within Volume 2, two possible approaches <strong>to</strong> documenting the
application of the ISA requirements are discussed. Please refer <strong>to</strong> Volume 2, Chapter 2 of this <strong>Guide</strong> for
details about the case studies.
The purpose of the case studies and the documentation presented are purely illustrative. The
documentation provided is a small extract from a typical audit file, and it outlines just one possible way
of complying with the ISA requirements. The data, analysis, and commentary provided represent only
some of the circumstances and considerations that the audi<strong>to</strong>r will need <strong>to</strong> address in a particular audit.
As always, the audi<strong>to</strong>r must exercise professional judgment.
The first case study is based on a fictional entity called Dephta Furniture. This is a local, family-owned
furniture manufacturer with 10 fulltime employees. The entity has a simple governance structure, few
levels of management, and straightforward transaction processing. The accounting function uses an offthe-shelf,
standard software package.
The second case study is based on another fictional entity called Kumar & Co. This is a micro-sized entity
with two fulltime staff plus the owner and one part-time bookkeeper.
Other IFAC Publications
The <strong>Guide</strong> <strong>to</strong> Quality Control for Small- and Medium-Sized Practices may also be read in conjunction with this
<strong>Guide</strong> which can be downloaded free of charge from the IFAC online publications and resources site at http://
web.ifac.org/publications/small-and-medium-practices-committee/implementation-guides
1.3 Glossary of Terms
The <strong>Guide</strong> uses many of the terms as defined in the IESBA Code, Glossary of Terms, and ISAs (as contained in
the 2010 IFAC Handbook of <strong>International</strong> Quality Control, Auditing, Review, Other Assurance, and Related Services
Pronouncements). Both partners and staff must be aware of these definitions.
The <strong>Guide</strong> also uses the following terms:
Anti-Fraud Controls
These are controls designed by management <strong>to</strong> prevent or detect and correct frauds. With respect <strong>to</strong>
management override, these controls may not prevent a fraud from occurring, but would act as a deterrent
and make perpetrating a fraud more difficult <strong>to</strong> conceal. Typical examples are: