a) Explain six limitations of gathering audit evidence. b) Summarise three considerations that must be made for the external auditor to rely on the work of the...

a) Explain six limitations of gathering audit evidence.
b) Summarise three considerations that must be made for the external auditor to rely on the
work of the internal auditor.
c) In view of the financial reporting framework, explain five considerations that the auditor
should make when forming an opinion.

(a) Limitations of gathering audit evidence are:-
- It is usually expensive to gather evidence especially from third parties where such third
parties are numerous and geographically dispersed.
- There may be lack of co-operation from the staff and to some extent third parties in
availing audit evidence.
- There are possibilities of collusion between management employees and third parties
leading to distortions of audit evidence.
- The business of the entity might be technical and as such difficult to gather evidence and
the auditor has to use experts.
- There might be inadequate record or incomplete records which may limit internal
evidence.
- There may be problems of biased opinion especially in observations if they are made by
unqualified and incompetent audit personnel.
- Evidence from third parties may delay or there may be lack of co-operation in replying to
auditor's circularisation.

(b) Considerations under which the external auditor can rely on the work of the internal
auditor arc:
- The extent to which the internal audit functions organisational status and relevant policies
and procedures support the objectivity of internal auditors.
- The level of competence of the internal audit function i.e. their qualifications.
- Whether the internal audit function applies a systematic and disciplined approach
including quality control.
- Assessing of the management acts upon their reports.
- Availability of resources
- Previous experience

(c) Considerations that should be when forming an opinion made are:
- The financial statements adequately disclose the significant accounting policies selected
and applied.
- The accounting policies selected and applied are consistent with the applicable financial
reporting framework
- Compliance with the international financial reporting standards.
- The accounting estimates made by management are reasonable.
- The information presented in the financial statements is relevant, reliable, comparable
and understandable.
- The terminology used in the financial statements including the title of each financial
statement is appropriate.
- The financial statements provide adequate disclosures to enable the intended users to
understand the effect of material transactions

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Kavungya answered the question on May 14, 2019 at 13:26

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