RS & Associates, Chartered Accountants, were appointed as the statutory auditors of Zene Biotech Limited, a company engaged in manufacturing…

Objectives of Audit In conducting audit of financial statements, objectives of auditor in accordance with SA-200 “Overall Objectives of the Independent auditor and the conduct of an audit in accordance with Standards on Auditing" are: (i) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and (ii) To report on the financial statements, and communicate as required by the SAs, in accordance with the auditor's findings. (1) Auditor's objective is to obtain a reasonable assurance whether financial statements as a whole are free from material misstatement whether due to fraud or error. Reasonable assurance is to be distinguished from absolute assurance. Absolute assurance is a complete assurance or a guarantee that financial statements are free from material misstatements. However, reasonable assurance is not a complete guarantee. Although it is a high-level of assurance but it is not complete assurance. Audit of financial statements is carried out by the auditor with professional competence and skills in accordance with Standards on Auditing. Audit procedures are applied in accordance with SAs, audit evidence is obtained and evaluated. On basis of that, conclusions are drawn and opinion is formed. It leads to high level of assurance which is called as reasonable assurance but it is not absolute assurance. (2) Misstatements in financial statements can occur due to fraud or error or both. The auditor seeks to obtain reasonable assurance whether financial statements as a whole are free from material misstatements caused by fraud or error. He has to see effect of misstatements on financial statements as a whole, in totality. (3) Obtaining reasonable assurance that financial statements as a whole are free from material misstatements enables the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. (4) The opinion is reported and communicated in accordance with audit findings through a written report as required by Standards on Auditing. In the given case of Zene Biotech Limited, the issues relating to valuation of inventories, recognition of export revenue and unusual payments to suppliers indicate possible risks of material misstatement in the financial statements due to fraud or error. Therefore, the auditor is required to perform audit procedures in accordance with Standards on Auditing and obtain sufficient appropriate audit evidence to achieve reasonable assurance that the financial statements as a whole are free from material misstatement. Based on the audit findings, the auditor is also required to express and communicate his opinion through a written audit report in accordance with the Standards on Auditing.