Transcription
Good evening, Double A students. Hope you all are doing well.
So, in today's lecture, we will be going to start Chapter Number Two. And in Chapter Number Two, we have four parts. Part A is about the financial statements. Part B is about the responsibilities of parties involved in an audit. Part C is about the regulatory environment of auditing, meaning the standards which we will follow and the board who implements or created such standards. Part D is about the case studies perspective. There are a few pointers which have been extracted from past paper exams and which are very relevant if you will get any case study from those points. So, there are four parts and the total learning objectives in today's lecture is 10. Don't worry, the learning objectives are very small, but you have to be attentive during this lecture because this lecture is about the basic concepts of auditing.
In the previous lectures, we covered the overview of assurance. Why assurance is relevant, who are involved in the audit, and who gives assurance to whom. If you have not watched the previous lecture, which is Lecture Number One or Chapter Number One of Audit and Assurance, then please go step by step, lecture by lecture. You will get better clarity because the lectures which I have created for you and I am recording for you are based on the sequence. If you skip any lecture, then you will not be able to understand the content which we will cover in the next lecture. So, please, it's my humble request, if you have not covered the previous lecture, please watch the previous lecture, then move to Lecture Number Two, which we will start now.
So, this is Chapter Number Two, Audit and Assurance. If any of you don't know about the paper pattern of the Double A, then let me tell you about the paper pattern. In the Double A, you will get 70 marks for writing, meaning you have to write your answers. This paper is not about MCQs based like F7 and other subjects, F9. In the Double A, you have to solve the 70 marks paper and the remaining 30 marks for the MCQs based. So, please guys, be attentive in this exam. The examiner will check your drafting. Once we will move to the next stages, then you will understand the content or the drafting techniques. If you have watched the previous lectures in which I have given you some assignments, those assignments will monitor your strength or your ability to draft your answer, like how good you are in drafting. So, please, do not skip any assignment which I am attaching after every topic.
Let's start today's lecture. Lecture Number Two of Chapter Number Two. The topic is Basic Concepts of Auditing. We will start with Part A, Financial Statements. If you remember, in the last lecture, I have told you that the components of the financial statements are five. First one is the Statement of Financial Position. Second one is the Statement of Profit or Loss or Comprehensive Income. Third one is the Statement of Changes in Equity. And the fourth one is the Statement of Cash Flows. The last and the fifth component of the financial statement is Notes to the Financial Statements, in which you write the summary of significant accounting policies and other explanatory information. Means, those things you have to disclose in the notes. So, there are five components, and we, as an auditor, will check each of the components.
So, we, as an auditor, should check whether financial statements have been prepared in accordance with the framework. Framework. If you remember, I have told you in the last lecture that every geographical region, every region has a specific framework. So, you have to ensure that the financial statements prepared by the management/directors are based on the applicable financial reporting framework and give a true and fair view. Okay? If you watched the previous lectures in which we have spent so much time on the difference between the best view and true and fair view. We, as an auditor, work to ensure that the financial statements prepared by the management give a true and fair view, not the best view. Why? Because in the best view, management has an incentive. So, there is a possibility that for personal performance, for personal benefits, management may manipulate the financial figures. Remember the sales target examples.
Okay guys, let's start with Part A, Financial Statements. An auditor shall check whether financial statements have been prepared in accordance with the framework. Why we check the framework? Because the framework will give you the idea either it's for the accrual or cash basis. So, the framework is very, very relevant. Every framework is different. Few financial statements are for the tax purpose. If you remember the three-party relationship. Intended users. Intended users are not just the shareholders. They have bankers, they have tax advisors. Means, the tax department can also ask for the financial statements. So, that's why the framework is very, very relevant.
Learning Objective One is about the financial statements. Financial statements mean a structured representation of historical past financial information. A complete set of financial statements includes five components. These are the five components on which we, as an auditor, will work: Statement of Financial Position (Balance Sheet), Statement of Profit or Loss and Other Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows, Notes to the Financial Statements. Don't worry, once we will move further on the later stages, I will show you the real financial statements. In my lectures, you will not just cover the syllabus. I will go beyond your syllabus. I will cover the actual reports, the actual audit reports, and the audited financial statements with you guys. When we move to the control testing chapter and substantive procedures, I will show you the real documents, the evidence which we will get. Okay, so no need to worry at all. This course is not just about the theoretical implication. It's about the practical implication as well because you guys will be the next auditors.
So, there is a concept review question: What parts of a company's annual report are covered by an audit report? Whenever there is a word "annual report," annual report means the overall information of the company. Financial statements are a component of the annual report. Annual report doesn't mean that financial information or financial statements. An annual report covers the directors' report, chairman's review report, company accounts. It includes everything, and in the annual report, there are financial statements, financial information as well. So, you have to be specific while writing this answer. Okay, this question comes from the ICAEW.
Now guys, what is meant by true and fair view? Now you will get better clarity, better understanding of the meaning of the true and fair view. The term "true and fair view" or "fair presentation" has no legal definition. Means, there is no legal definition. True means free, free from error. Means, your financial statements should be free from error. And fair means free from undue bias. Means, there is no pressure, there is no pressure or influence on the management from the higher management or senior management. Means, the financial statements prepared by the management should be free from error and free from bias in the preparation or presentation of financial statements. The phrase "true and fair view" indicates that judgment. Whenever there is a word "judgment," you have to be skeptical because judgment can vary from every organization or every entity. So, it indicates that judgment is applied in the preparation of financial statements by management and in expressing an opinion by the auditor. So, we, as an auditor, will have to ensure that the financial statements prepared by the management include management judgment, are free from errors, and there is no pressure on the management from the higher or senior authority.
There is another concept review question: Discuss the concept of fair presentation and true and fair view in relation to the financial statements. Guys, these concept review questions will further enhance your knowledge and your learning abilities. So, please do not skip these CRQ questions.
Now, Learning Objective Three, Financial Reporting Framework. In which you will understand and cover why financial reporting frameworks are important. A financial reporting framework is a set of criteria. This is the criteria. You can say this is the bible. Why to use to prepare the financial statements. Based on these criteria, based on these frameworks, financial statements are prepared. Types of frameworks. There are many types of frameworks. Example: General purpose for a wide range of users and special purpose for specific users. General purpose means for shareholders, for investors. And special purpose, such as for the bankers. Let's say the entity is going to obtain financing from the bank, and the bank asks for a cash flow forecast along with the audit report. So, for the bankers, for other financial institutions, and for the tax departments, we have to prepare the financial statements based on the special purpose. So, that's why these financial statements are for specific users.
Now, Fair Presentation Framework and Compliance Framework. What is the meaning of fair presentation? If you remember, in the learning objective, we covered "fair." Fair means free from error. And compliance means it should comply with the rules and regulations. Once we will read the definition, then you will cover it better.
Now, Fair Presentation Framework. What is the meaning of Fair Presentation Framework? Okay guys, a Fair Presentation Framework is a financial reporting framework that requires compliance. Still, the Fair Presentation Framework requires compliance that requires compliance with the requirements of the framework. Means, in the Fair Presentation Framework, you have to meet the requirements. You have to comply with the requirements of the framework. The requirements asked by the framework, you have to comply with it. And it contains an acknowledgment that to achieve fair presentation, it may be necessary for management. These are for the management because financial statements are prepared by the management. So, management will have to ensure that they are applying or they are complying with the requirements of the framework in the preparation of the financial statements. It may be necessary for management to provide disclosures in addition to the specific requirements of the framework. If there are any disclosures which are relevant to the users. Users who are the users? Those for whom financial statements are prepared. You can say shareholders, investors, stakeholders, or means anyone. Okay, anyone of them. Means, any condition or to depart from a requirement of the framework. In a Fair Presentation Framework, the auditor expresses an opinion. Now, now, once the financial statements are prepared, then we, as an auditor, will express an opinion. In a Fair Presentation Framework, the auditor expresses an opinion whether the financial statements give a true and fair view, whether it is correct or not, in accordance with the framework. Financial statements are presented fairly. Fairly means free from error, no bias, no undue influence, in all material respects. All material respects. In accordance with the framework. Both phrases are equivalent.
Now guys, an example is International Financial Reporting Standards, which you have followed in F7. And in the next paper, SBR, we all comply with the IAS and IFRS requirements. IFRS International Financial Reporting Standards. Let's say guys, management of ABC Company records sales in advance. They deliver the order or the goods to the customer after one year and they receive the payment now. And they record it as a revenue. Means, the revenue is recognized early before satisfying the performance obligation. So, do you think this is correct as per IFRS 15? No, it's not correct. Why? Because as per IFRS 15, you can book a revenue when the performance obligation has been satisfied. Now, in this case, the entity should record a contract liability because it's an advance. What if the entity will not provide goods to the customer? Then, of course, the entity will have to repay the amount to the customers. So, this is a liability. So, the company has to book or record the liability rather than the advance. So, this is not as per IFRS requirement. Means, this transaction is not a Fair Presentation Framework. So, Fair Presentation Framework means to comply with the IFRS requirements.
Now guys, Compliance Framework. A Compliance Framework is a financial reporting framework that requires compliance with the requirements of the framework. Now, the difference is, please be attentive. And does not contain an acknowledgment. Whereas in the Fair Presentation Framework, acknowledgment should be contained. And does not contain an acknowledgment which are contained in the Fair Presentation Framework regarding additional disclosures or departure from requirements of the fair framework to achieve fair presentation. Means, in the Compliance Framework, you do not have to contain the acknowledgment of these two conditions.
Okay. Now, in a Compliance Framework, the auditor expresses an opinion whether the financial statements are prepared in all material respects and in accordance with the framework. The opinion is the same in both things. You can see, only the difference is about giving a true and fair view. In the Compliance Framework, there is no line or nothing mentioned about the financial statements giving a true and fair view. This is only for the Fair Presentation Framework. In the Compliance Framework, the auditor expresses an opinion whether the financial statements are prepared in all material respects in accordance with the framework. In the Compliance Framework, you cannot change. Okay? You cannot change the framework by your own. You are restricted. So, guys, so in the Fair Presentation Framework, you can change. You have to obtain permission. But in the Compliance Framework, you cannot change by your own. It is about the Compliance Framework.
Now guys, the example is Tax Basis Framework. Remember the special purpose framework. So, Compliance Framework is for the special users, specific purpose. Whereas the Fair Presentation is for the general purpose.
Now, Applicable Financial Reporting Framework. Applicable means the management has selected a relevant framework for the financial statements. Applicable means already accepted. Applicable Financial Reporting Framework is the financial reporting framework adopted by management and TCWG. Those charged with governance, directors, in the preparation of financial statements, considering these are the aspects or the factors considered by management in selecting the financial reporting framework for the financial statements. Considering factor number one: Legal requirements, nature of the entity, means the operations of the entity, nature of financial statements, and purpose of financial statements. To whom the financial statements are relevant. For FRF includes financial reporting standards, IFRS or US GAAP. We covered as per the IFRS. And may be supplemented, means additional, by law or regulations if relevant. If FRF is other than IFRS, means other than IFRS, it could be for the US GAAP or UK GAAP. The country of framework shall also be mentioned in financial statements and auditor's report. Then you have to include, you have to write that this financial statement is for the UK specific or US GAAP specific.
Now guys, there is a study tip: Auditor shall not accept a proposed audit engagement if FRF is not acceptable. If the applicable financial reporting framework adopted by management is not acceptable, then we, as an auditor, shall not accept the engagement. Management means persons responsible for operational and managerial duties, CFO, CEO. TCWG means responsible for overseeing the strategic direction and accountability, directors. If you know the hierarchy of the company, first we have the investors, shareholders, then directors, then management, then senior, then junior. Okay. Again, there is a concept review question: Differentiate between Fair Presentation and Compliance Framework.
Now guys, we are done with Part A. We are moving to Part B, Responsibilities of Parties Involved in Audit. Who are involved in the audit? Can anyone tell me? Only there are three parties. Audit is about the three-party relationship. But now we are covering the responsibilities. So, in the audit, there are two parties who are responsible. The first one is Management and TCWG. The second one is the Auditor. Means, we.
Now, first, cover Learning Objective Four, Responsibilities of Management and TCWG. What are the responsibilities of the management and TCWG? Okay. So, there are so many responsibilities of the management. But for this lecture or for this topic, we will cover the basic or the general responsibilities of the management. Because there are so many responsibilities of the management and TCWG. Once we will move to the later chapters, then I will link each of the responsibilities of management and TCWG in that relevant chapter.
An audit is conducted on the premise. Premise means responsibilities that management and, where applicable, TCWG, if there is a need for TCWG, is responsible. Responsibility Number One is for preparation and presentation of financial statements in accordance with AFRF. Yes, you know, because from the last two lectures, we were talking about the responsibility number one. This includes identifying AFRF, means management first should have to identify the applicable financial reporting framework. Preparing financial statements in accordance with that financial reporting framework. Applying appropriate accounting policies and reasonable estimates. Means, the judgment used by the management in the preparation of financial statements should be relevant and appropriate.
Responsibility Number Two is for design, implementation, and operating effectiveness of internal controls. If you remember, in the last lecture, I have told you that the design and implementation of internal controls is the responsibility of the management. We, as an auditor, only give recommendations if the internal controls are ineffective. Means, if there is a weakness in the internal control. Remember the example of sales to a customer and didn't obtain or didn't give the signature of the customers. Such internal controls which are necessary for preparation of reliable financial statements.
Responsibility Number Three is to provide the auditor with. It is the responsibility of the management to provide the auditor, means to us, with all the relevant information, additional information requested by us, the auditor, and unrestricted access to persons within the entity to obtain evidence. Means, if we have to obtain evidence from any access, such as from the client software or data, then management should have to give access.
Now guys, if you recall the last topic of yesterday's lecture, absolute assurance, in which we covered the inherent limitations. So, don't you think these are the inherent limitations? So, now guys, all the lectures are interlinked with the previous lectures because this course is designed with the sequence. If you skipped the last lecture, then you can't understand the content of the next lecture. So, please watch the previous lectures.
Concept Review Question: Briefly highlight the management responsibilities relating to the financial statements. You just have to read and write.
Now guys, Learning Objective Five, Overall Responsibilities. These responsibilities are the general responsibilities because the auditor also has specific responsibilities, which we will cover once we move to the later chapters. Overall objectives or responsibilities of the auditor or audit. The overall objectives of the auditor are to obtain reasonable assurance. Remember yesterday's lecture, reasonable assurance means from 1% to 99%, not 100%, because absolute assurance cannot be provided. We cannot certify or guarantee that financial statements are free from all misstatements.
Now, in the reasonable assurance, all misstatements are replaced with material misstatements. Material means we have to check the transactions from a certain threshold. If the transactions are above that threshold, then these are the material. Now guys, overall objectives of the auditor are to obtain reasonable assurance. Reasonable assurance whether financial statements are free from material misstatement, not all. Okay? Material misstatement. Let's say the materiality amount is 100. Just assume the materiality amount is 100, and you are checking the transactions of sales. There are 20 transactions. 15 transactions are below 100. 15 transactions are of amount 95 each. And the remaining five transactions are above 100. Remaining transactions include 100.01, 102, 105. So, now you have to check whether the transactions above 100 are relevant and reliable. Means, the documents, the evidence of the transactions above 100 are accurate or not.
Now guys, to report on financial statements, which includes the auditor's opinion, and to communicate auditor's findings as required by ISA's to directors, regulators. If there are any findings which we have identified, in which we find any difficulty, we should have to communicate with the directors, with the regulators. If there are any suspicious activities about the client. Of course, we cannot discuss those things, those frauds, with the client. We should have to communicate with the regulators. Regulators are independent persons. Why we communicate with the regulators? Remember, we have a professional liability. We not only work for the shareholders. We also work for the general users. Audit report or audited financial statement is not just for the shareholders. It's also for the stakeholders. Stakeholder means the investors, the general public, the users, customers, suppliers, banks, creditors, anyone. Okay?
You are the audit manager of Rack Enterprises, a limited company. The company's annual revenue is over 100 million. Compare the responsibilities of the directors and auditors regarding the published financial statements of Rack Enterprise. This is the concept review question from the ACCA F8 exam, June.
2005 Now guys, learning objective three: Responsibilities of stakeholders and the expectation gap. Now, after these responsibilities, your mind will give you further clarification. Let me tell you what is the meaning of the expectation gap. Let's say you are a stakeholder or you are a shareholder in ABC Company, and you appointed me as an auditor for the year ended 30th June 2025. Now, I come to your company and I audited your entity. Once I'm done with the audit for the year ended 30th June 2025, I give you the audit report and the audited financial statements. After you receive the audit report and the audited financial statements, you ask me, "Can the other shareholders or stakeholders or the investors rely on this audit report and can invest in this company their lifetime savings?" So, what do you think? What will I say? Of course, I will say, "We obtained reasonable assurance. We did not obtain an absolute assurance." It means this audit report, these audited financial statements are relevant till 99%, but there is a 1% chance that in this audit report, in these audited financial statements, there are some 1% margin of error. So, it means the absolute assurance which we will not provide because of the expectation gap which investors have on the audited financial statements and on the audit report, which the investor thinks that the financial statements and the audit report are the last resort, are the final document, or the evidence on which we can make an investment in that particular industry or entity. That's why we, as an auditor, never give absolute assurance. Why? To remove the expectation gap of the stakeholders or investors. So, the summary of the expectation gap means investors have an expectation. Investors think that the audit report is the best and the last evidence or the document on which we can rely and invest all our funds in that entity. So, for the investors' expectation gap removal, we have to provide reasonable assurance so that investors understand that the audit report and the audited financial statements are not 100% correct or accurate.
Now guys, it is the responsibility of stakeholders to understand and eliminate the expectation gap so that the scope of the audit is not misunderstood. This is very, very important. Expectation gap means, sorry, expectation gap means public perception, general public users' perception of the role and responsibilities of the external auditor is different and is usually higher than his statutory roles and responsibilities.
Now guys, these are some common misunderstandings that is the expectation gap about audit. Investors assume that auditors prepare financial statements. No, it's incorrect. Management prepares financial statements. The second misunderstanding is, investors assume that auditors check 100% transactions of the entity during the accounting period. No, because of inherent limitations, because of timing and cost limitations, we perform audits on a sample basis. Misunderstanding number three: Investors, stakeholders assume that the auditor provides absolute assurance, means the auditor certifies or guarantees that financial statements are correct in all material respects and can be relied upon for all decision-making purposes. No, this is incorrect. We, as an auditor, provide reasonable assurance that financial statements are free from material misstatement, not all misstatements. Misunderstanding number four: Auditor is responsible to prevent and detect fraud. No, guys, this is chapter 19, ISA 240. It is the responsibility of the management and TCWG to identify, to prevent, and detect fraud. We, as an auditor, only obtain reasonable assurance that financial statements are free from material misstatement and to perform the procedures on the identification of fraud. Okay? Identifying, prevention, and detection of fraud is the responsibility of the management, not the auditors. So, these are the misunderstandings, the expectation gap which the investor has from us, from the auditor. So, we have to remove those expectations, and how we will remove them? By writing the wording, "We obtained reasonable assurance."
Now, there are two concept review questions. Explain the term expectation, that means the definition. Then, guys, question number seven is a case study. There are three parts, A, B, C. This is a very good case study. If you want a strong grip on this topic, then you have to solve this case study.
Learning objective seven: Essentials, means principles for proper conduct of audit. If you remember, in yesterday's lecture, I have mentioned that once we move to the lecture or chapter number two, then you will learn or understand the term independence. So, this is the time to understand independence. Why an independent auditor is necessary and why independence is essential. Independence means no connection. Connection means no family, no personal, no financial connection or no financial link. Independence should be free from bias or undue influence. Let's read it. Independence means the auditor should be free to perform audit or audit procedures without any bias or influence from the management or from any person. The auditor should be independent of financial interest with the client, means no transactions, no business relationship. Family and personal relationships with the client, no close and family relationships. Employment with the client, not having been associated with the employment of the client. This concept will be discussed in detail in chapter six and seven, means ethics. Once we move to these chapters.
Now guys, professional skepticism. This is one of the most important topics from your exam point of view. In every exam, single and in every risk question, the professional skepticism should be there. Before starting professional skepticism, let me give you an example. Let's say you, along with your audit team, is going to perform the audit of Albish Limited. Okay? Before entering the premises of Albish Limited, you were standing outside of the entity. A guy came out from a brand new BMW car. So, you, along with your audit team, looking for that guy and just commented on him that, "Wow, what a car that guy has! Hope he will get that car soon." Once we move to the managerial position, after a few times, you, along with your audit team, entered the client premises, and the same guy was sitting at the desk and working. You asked from the management person, "Who is that guy?" The manager said, "That is the purchase clerk of our organization." You, along with your audit team, shocked. "How can the purchase clerk buy a brand new BMW?" So, your mind suddenly gives you the idea, the hint that there is something fishy. Maybe the purchase clerk, because purchase department persons can do wonders, can do many frauds, are more involved in fraudulent and financial reporting activities. So, if you are a good auditor, if you are a professional auditor, and your mind, like your instincts, are very high. So, you have to be professionally skeptical. Means your mind gives you the hint that there is something fishy. So, this is professional skepticism. Whenever you are going to perform the audit, your skepticism should be high, means you have an attitude to ask questions, to challenge the management, to identify the sort of such activities.
Let's read professional skepticism. Professional skepticism is an attitude that includes a questioning mind, means your mind should be, you have to question the management, being alert to conditions which indicate possible misstatement due to error or for the purchase clerk condition, and critical assessment of audit evidence. You can refer this line with the example. Well, once you asked the manager, "Who is that person?" The manager told you, "That is the purchase clerk." So, after that, you asked the management again. "So, if he is your purchase clerk, then how can he buy a brand new BMW?" The manager told you that, "Last year, we gave some bonuses to this person." So, then you have to critically assess the evidence. What kind of bonus is this? Why only he got the bonus, not the other employees? So, these are the instincts which you should have to follow in professional skepticism while doing the audit. Even if management has shown honesty and integrity in the past. It means if you are performing the audit of an existing client, means last year you already performed the audit of that client, and this year you are also performing the audit of the same client. Last year, the client was honest and integral in all aspects. So, it doesn't mean that this year the client's honesty and integrity is still there. You have to be skeptical in every audit, in every year. There is a possibility that last year there were no frauds, but this year there are, or there should be some fraud. So, your skepticism should always be high. Even if management has shown integrity and honesty in the past, still, the auditor shall apply professional skepticism in planning and performing the audit. He shall corroborate every assertion of management by obtaining persuasive evidence. Means your skepticism should be high. You should have to be the questioning mind, being alert to conditions, and critically assess the evidence.
So, now guys, advantages of professional skepticism. Professional skepticism ensures that the auditor does not overlook unusual circumstances. If there are unusual circumstances, then you should not overlook it. Means you should not ignore it. You have to work on it. Overgeneralize when drawing conclusions from audited assertions. It means if you are reviewing the sales, so it doesn't mean if sales are correct, then the remaining areas like purchases are also correct. You have to work on each specific area. So, no need to overlook, means no need to ignore it. And overgeneralize means if sales are correct, then it's not possible that the purchases are also correct. Use inappropriate assumptions in determining audit procedures and evaluating reserves. Let's say the last year depreciation rate was 5%, and this year it is 10%. So, you have to check why this significant increase in the assumption. Same goes for the bad debts. Last year, the bad debt rate was 5%, and this year it is 15%. So, you have to ask it.
Now guys, professional judgment. The judgment should be applied. Professional judgment is the application of cumulative audit knowledge, experience, and training within the context of accounting, auditing, and ethical standards to reach an appropriate course of action or conclusion during an audit. The simple term of professional judgment means your judgment should be high, and how to apply the correct judgment? For that, you have to do the training, the CPD courses, means your knowledge should be, your expertise level should be high. Areas where professional judgment is applied: in planning of audit, in the risk assessment, because the start state of the audit, the planning stage, in which we do the risk assessment. In risk assessment, in determination of materiality, these are the two further chapters which we will cover in the next lectures. Performance of audit, in deciding nature, timing, and extent of audit procedures, like what procedures, how many procedures should be performed. In evaluating sufficiency and appropriateness of audit evidence. This is chapter three, which we will start tomorrow onwards. Reporting stage, the finalization stage, in drawing conclusions based on evidence of means, once your audit is done, then in that stage, in the last stage, you will express your opinion.
Now guys, there are two past paper questions, concept review questions. So, now guys, we are also done with part B. Now, we will start part C, regulatory environment of auditing, in which we will cover the basics, the understanding of the board, which we will end, and all the professional accountants around the world should follow. Let's start with learning objective eight: Introduction to IFAC and IAASB. IFAC means International Federation of Accountants. IFAC is the global organization or the worldwide leader of all professional accountants who are working for the best interest of the general public. Let's start. IFAC, International Federation of Accountants. IFAC is the worldwide leader of the audit profession. It is the global organization of professional accountants dedicated to serving the public interest. We are working for the public interest. So, IFAC gives the guidelines.
Now, there are functions, roles, activities of IFAC. IFAC supports the development of the profession in the area of auditing, ethics, professional education, and public sector by following activities. So, these are the activities: Development of high-quality standards and guidance. They develop, they introduce IFRS, ISA, IAS. Facilitating the adoption and implementation of standards and guidance. Also, they implement the guidance, they give us the clarity, like how to implement those standards. Promoting the value of professional accountants worldwide. They are also working for the promotion, for the better image of this profession around the globe. Speaking out on public interest issues where professional voice is essential. They also serve on the public forum where it's mandatory or essential.
Now, boards' functions, roles. I think we have covered the functions, roles. Yeah, so it's just a misinterpretation. So, these are the same. Okay. Boards of IFAC. There are four boards in IFAC. Let's start reading. These are the four boards: Audit, Ethics, Professional Education, and Public Sector. Now, learn their board names. IFAC includes four boards. First one is IAASB, International Auditing and Assurance Standards Board. The IAASB, the concept, the syllabus which we are studying. International Ethics Standards Board for Accountants, IESBA. Ethics is also part of our syllabus. International Public Sector Accounting Standards Board, IPSASB. Don't worry, you do not need to memorize these things. International Accounting Education Standards Board. You just have to understand their roles, activities, because you will get them in your MCQs.
Now guys, International Auditing and Assurance Standards Board activities. IAASB is one of the boards within IFAC. Its years and performs the following activities, roles. It develops and promotes standards for assurance. It's only related to assurance. So, in these IAASB activities, you will learn about the assurance-related things. Assurance and related services. It also provides facilitation in adoption and implementation of international standards. In doing so, IAASB enhances quality and consistency of assurance practices throughout the world. In addition to ISAs, IAASB also issues International Auditing Practice Statements to help auditors in implementing ISAs, means how the auditors can implement the ISAs, International Standards on Auditing, and to promote good auditing practice in general. IAPS do not have the same authority as ISAs. Means, as the authority which we have by adopting the ISAs, does not supersede by IAPS.
So, types of international standards issued by IAASB. Engagement services covered by IAASB: Assurance services and related services. So, in the assurance services, we have audit, reasonable assurance. We have review, limited assurance. And other, other reasonable or limited on other financial or non-financial information. In the related services, we have agreed-upon procedures and compilation engagements, which you will cover in the triple exam. Now, audit is conducted in accordance with ISAs. Review is conducted in accordance with ISRS. Other engagements are conducted in accordance with ISAES. Related services are conducted in accordance with ISREs. ISQM, International Standard on Quality Management. Now, it's ISQM, not ISQCC. Apply on all types of services.
So, now guys, there is again a concept review question. Briefly explain the role of IAASB. These ones, okay, for the two or three marks, yeah, four marks.
Now guys, now we have learning objective number nine: International Standards on Auditing, ISA. Process of developing and issuing a new ISA. What could be the process when you are going to develop and issuing a new ISA? A subject is selected for detailed study. Of course, first, you have to do the research. After conducting comprehensive study and research, an exposure draft. A draft, draft means not a final version. It's a draft. There is a possibility of errors. An exposure draft is produced, which is approved by IAASB, International Board, and then distributed widely for public comments. Comments and proposed amendments, means suggestions, are considered by IAASB. The new ISA is then published. So, in your MCQs, you may get the role and responsibilities and the process of issuing a new ISA, who will implement, who will suggest, like this. Contents of ISA: Introductory material, objective, definitions, requirements, application and other explanatory material, including appendices. Authority status of ISA. Okay, this is related to specific countries. So, if I talk about Pakistan, like my country, in Pakistan, audit is conducted in accordance with ISAs. Because there are some specific entities, they conduct their audit in accordance with their specific standards. If I talk about India, they follow SA, or Indian Standards on Auditing. Okay, to obtain reasonable assurance, it is compulsory for the auditor to comply with all requirements of all ISAs in all around the world, means in the entire country. Mostly, or if I can say, we perform audit in accordance with ISAs. So, no need to worry or confuse with the world. In Pakistan, in India, because we all have to implement the ISA, International Standards on Auditing. Exception to follow requirements of ISA. A required procedure will not be performed if it is not relevant or not practicable. Then, the procedure will not be performed if it is not relevant or not practicable. However, if a procedure is not practicable, the auditor shall document reasons for departure from required procedures. Means why, why you are not performing or refusing this required procedure, and alternative procedures to obtain evidence. Then you have to perform additional or alternative procedures. Again, there is a CRQ question on this. This is from the ICMAC, International Cost Management Accountant.
Now guys, these are the part D case studies, perspective. This is for your learning. You should have to read or learn all these, these case study situations because there is a possibility that you may get one, two, three, or more than that in your risk questions. So, if you have learned these situations, then it will help you in picking the risk and related procedures in your exam.
Now, there is again a concept question, a big case study for your better understanding.
Now guys, in the end, we have a suggested solution of all the CRQs we have covered in the above slabs. So, once you will done with this question, then you can check their answers here. So, now guys, it's up to you. I have delivered the lectures, I have delivered the concepts. Now, it's up to you to do the preparation. If you are not doing justice with your profession, then of course, justice will prevail. So, please guys, be attentive, be serious. Do not think about your results. Whenever it will come, it will. So, please be attentive and be aggressive. Take care and goodbye.