# SA 200 – Overall Objectives of the Independent Auditor

## What is an Audit?

An audit is an independent examination of financial information of any entity — whether profit-oriented or not, and irrespective of its size or legal form — when such examination is conducted with a view to expressing an opinion on that financial information.

Key words to remember:

Independent → auditor must be free of bias.
Any entity → applies to companies, LLPs, trusts, NGOs, sole proprietors, etc.
Expressing an opinion → audit is opinion-based, not a guarantee.

## Applicable Financial Reporting Framework (AFRF)

The framework adopted by management in the preparation and presentation of the Financial Statements (FS), which is:

Acceptable in view of the nature of the entity and the objective of the FS, OR
Required by Law or Regulation (L&R).

Examples: Indian Accounting Standards (Ind AS), Accounting Standards (AS) notified under the Companies Act, Income Computation and Disclosure Standards (ICDS).

## Objectives of an Audit (as per SA 200)

SA 200 — Overall Objectives of the Independent Auditor and the Conduct of an Audit in accordance with Standards on Auditing — lays down two principal objectives:

1. To obtain reasonable assurance about whether the FS as a whole are free from material misstatement (MM), whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the FS are prepared, in all material respects, in accordance with the AFRF.

2. To report on the FS, and communicate as required by the SAs, in accordance with the auditor's findings.

Secondary effect: An audit enhances the degree of confidence of intended users in the FS.

## Historical Financial Information

Information expressed in financial terms for a particular entity, derived primarily from the entity's accounting system, about economic events occurring in past time periods, or about economic conditions at points in time in the past.

## Scope of Audit

### What Scope Includes

Element	Auditor's Role
Coverage of all aspects of entity relevant to FS	Examine all aspects that have a bearing on FS
Reliability & sufficiency of financial information	Verify that information is reliable and sufficient
Proper disclosure	Ensure information is disclosed as per statutory requirements, FS properly summarise the recorded transactions and events, and evaluate management's judgments and choice of accounting policies (consistency)
Expression of opinion	Form and express an opinion on the FS

Remember: Selection of accounting policies is Mgt's responsibility; the auditor only evaluates their appropriateness and consistent application.

### What Scope Does NOT Include

Duties outside the scope of competence of the auditor.
Preparation and presentation of the FS — that is Mgt's responsibility.
Authentication of documents — auditor is not an expert in this.
Official investigation into alleged wrongdoing — auditor has no specific legal powers; investigation is specific and narrow while audit is general and broad.

Worked example

### Example 1

Example 1 — Identifying the AFRF

ABC Ltd, a listed company in India, is required to prepare its FS under Ind AS as notified under the Companies Act, 2013.

The AFRF here is Ind AS — because it is required by Law.
The auditor, in his report under SA 700, will reference Ind AS as the AFRF and form his opinion accordingly.

### Example 2

Example 2 — Scope vs. Investigation

Management of XYZ Ltd suspects that the warehouse manager has been pilfering inventory and asks the statutory auditor to ‘look into it'.

This is not a statutory audit objective — it is investigation, which is specific and narrow.
The auditor should advise the company to commission a separate forensic investigation assignment. He can, however, remain alert to such matters under his professional skepticism while performing the audit.

⚠️ Common exam mistakes

Writing that audit gives ‘absolute assurance' — it gives only reasonable assurance (high but not absolute).
Confusing audit and investigation — audit is broad and opinion-based; investigation is narrow and fact-finding.
Saying the auditor prepares the FS — preparation is Management's responsibility; the auditor only examines and reports.
Forgetting that audit applies to any entity — not only companies. Whether it is mandatory depends on law (only mandatory for companies under the Companies Act, 2013).

Bare-Act text SA 200, Para 3 & Para 11 · SA 200 – Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing · click to expand

The purposes of an audit are to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework, which enhances the degree of confidence that intended users can place in the financial statements. The auditor's opinion is based on obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

SA 200 – Meaning, Objectives & Scope of Audit

Worked example

⚠️ Common exam mistakes