CHARTERED ACCOUNTANTS ACADEMY

APPLIED AUDITING AND GOVERNANCE DEPARTMENT

CERTIFICATE OF THEORY IN ACCOUNTING

STUDY UNIT 1 - THE AUDITING PROCESS

TABLE OF CONTENTS PAGE

Contents
1. INTRODUCTION.........................................................................................................................3
2. Objective of The Audit Process.................................................................................................3
3. Scope........................................................................................................................................3
4. Study material...........................................................................................................................3
5. Competence Framework expectation.......................................................................................3
6. Examination possibilities...........................................................................................................4
7. Assumed Knowledge.................................................................................................................4
8. Integration................................................................................................................................4
9. Course Notes.............................................................................................................................5
9.1. Scope of an audit..................................................................................................................5
9.2. Overview of the audit process..............................................................................................6
9.3. Types of Engagements that can be performed by an auditor...............................................7
9.4. Reasonable assurance engagement:.....................................................................................7
9.5. Limited assurance engagement:...........................................................................................8
1. INTRODUCTION
The diagram at the beginning of your course notes, sets out the different stages of the
audit process. The audit process can be divided into four stages. The first phase is the
pre- engagement phase. The second phase is the planning phase. The third phase is the
auditor’s response to the assessed risks. The fourth phase is the evaluation, conclusion
and reporting phase.

2. Objective of The Audit Process

The objective of this study unit is for you to gain an understanding of the activities carried
out by the auditor and the reason behind those activities.

3. Scope
The scope of the auditor’s work and the opinion provided are usually confined to whether
the financial statements are prepared, in all material respects, in accordance with the
applicable financial reporting framework. As a result, an unmodified auditor’s report does
not provide any assurance about the future viability of the entity, nor the efficiency or
effectiveness with which management has conducted the affairs of the entity.
Any extension of this basic audit responsibility, such as that required by law or ZSE
regulations, would require the auditor to undertake further work and to modify or
expand the auditor’s report accordingly.

4. Study material
 CAA Applied Auditing and Governance AUD 402 Module 1
 ISA Handbooks, KING IV, NCCGZ & COBE.

5. Competence Framework expectation

The Audit Process Knowledge Reference List

1. Concepts and principles

 The audit process 3

 Financial statement assertions 3

2. Planning

 Planning an audit of financial statements (ISA 300) 2

 Materiality in planning and performing an audit (ISA 320) 2

 Identifying and assessing the risks of material misstatement

through understanding the entity and its environment (ISA 315)
 3

 The auditor’s procedures in response to assessed risks of material

misstatement (ISA 330)
3

 Planning in a computerised information systems environment 2

3. Procedures for gathering audit evidence

 Audit evidence (ISA 500) 3

 Nature, timing and extent of –

o tests of controls 3

o substantive analytical procedures 3

o substantive tests of details 3

 Computer Assisted Audit Techniques (CAATs) 2

6. Examination possibilities
The audit process will be examined within the different components of the process.

7. Assumed Knowledge
 Knowledge of auditing in accordance with ISAs
 The concept of auditing and other assurance engagements
 The objective of auditing
 The role of the auditor
 The relationship between the ISAs and IFRS
 The principal agent theory in relation to auditing

8. Integration
This topic can be integrated with any of the topics in the auditing module for first and
second semester.
9. Course Notes
The diagram on the next page sets out the different stages of the audit process. The audit
process can be divided into four stages. The first phase is the pre- engagement phase.
The second phase is the planning phase which includes obtaining an understanding of
the entity and its environment, the assessment of risks and establishing the overall audit
strategy and audit plan. The third phase is the auditor’s response to the assessed risks
and includes the performance of tests of controls and substantive audit procedures. The
fourth phase is the evaluation, conclusion and reporting phase.

While studying the diagram, you will note that, the CPC, By–Laws, King IV and Companies
and Other Business Entities Act are depicted across all the stages of the audit process.
This is because they are not only applicable at a specific stage of the audit process but
throughout the whole audit process. The auditor has to comply with ethics, principles and
laws from the time of assessing whether or not to accept the client until the issuance of
the audit report.

9.1. Scope of an audit

The scope of the auditor’s work and the opinion provided are usually confined to whether
the financial statements are prepared, in all material respects, in accordance with the
applicable financial reporting framework. As a result, an unmodified auditor’s report does
not provide any assurance about the future viability of the entity, nor the efficiency or
effectiveness with which management has conducted the affairs of the entity.

Any extension of this basic audit responsibility, such as that required by law or ZSE
regulations, would require the auditor to undertake further work and to modify or
expand the auditor’s report accordingly.
 9.2. Overview of the audit process
Stages of the Audit Process
The Companies and Other
Business Entities act
Chapter 24:03

Preliminary Engagement
Activities

Planning
King IV

Establish overall audit Develop an audit plan

strategy
The Code of Professional conduct (CPC) OF ICAZ and PAAB

Obtain Audit Evidence (The

auditor’s response to
By Laws on Professional conduct

assessed risks)

Perform tests of Perform Substantive

controls procedures

Evaluation, Conclusion and

Reporting
 9.3. Types of Engagements that can be performed by an auditor
The auditor may perform different types of engagements depending on the objectives
and purpose of the engagements. Below is a diagram which gives an overview of the
various types of engagements that can be performed by an auditor.

Type of
engagement

Assurance Non-assurance
engagement engagement

Agreed-upon
Compilation (ISRS
Audit (ISAs) Review(ISRE 2400) procedures (ISRS
4410)
4400)

Reasonable Limited
No assurance
assurance assurance( Negati No assurance
(Identification of
(Positive form of ve form of (factual findings)
information)
expression) expression)

9.4. Reasonable assurance engagement:

The objective of a reasonable assurance engagement is a reduction in assurance
engagement risk to an acceptably low level in the circumstances of the engagement as
the basis for a positive form of expression of the practitioner’s conclusion. Therefore, in
an audit engagement the auditor has to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement, whether due to
fraud or error.
 9.5. Limited assurance engagement:
The objective of a limited assurance engagement is a reduction in assurance engagement
risk to a level that is acceptable in the circumstances of the engagement, but where that
risk is greater than for a reasonable assurance engagement, as the basis for a negative
form of expression of the practitioner’s conclusion.
NB!!! In a limited assurance engagement, a practitioner is willing to accept higher risk as
compared to a reasonable assurance engagement given that the practitioner will be
giving a negative form of expression.