a)The objectives of an audit of financial statements.

Express an opinion: The objective of an audit of financial statements is to express the

opinion on whether the financial statements of an entity present fairly, in all material respects,
the financial position, financial performance, and cash flows of the entity in accordance with an
applicable financial reporting framework (e.g., International Financial Reporting Standards -
IFRS).
Also, to obtain reasonable assurance about whether the financial statements are free from
material misstatement, And;
To report on the financial statements, and communicates as required by the ISA, in
accordance with the auditor’s findings.

b) The roles and responsibilities of management on the financial statements.

Preparation and fair presentation: Management is responsible for the preparation and fair
presentation of these financialstatements in accordance with International Financial Reporting
Standards, and for suchinternal control as management determines is necessary to enable the
preparation of financialstatements that are free from material misstatement, whether due to fraud
or error.
Internal controls: Management is responsible for establishing and maintaining an adequate
system of internal controls to ensure the reliability of financial reporting.
Providing accurate information: Management must provide the auditors with all relevant
information and access to all records and personnel necessary for the audit.

c) The roles and responsibilities of the auditor on the financial statements

Obtain and evaluate appropriateness of accounting policies used: The auditor's
responsibility is to obtain and evaluate sufficient appropriate audit evidence to express an
opinion on the financial statements.An audit also includes evaluating the appropriateness of
accounting policies used and thereasonableness of accounting estimates made by management,
as well as evaluating the overallpresentation of the financial statements.
Express an opinion: responsibility is to express an opinion on these financial statements
based on the audit performed. Auditor conducts audit in accordance with International Standards
on Auditing. Thosestandards require that we comply with ethical requirements and plan and
perform the audit toobtain reasonable assurance whether the financial statements are free from
materialmisstatement.
 Compliance with standards: The auditor must comply with relevant ethical requirements
and professional standards on auditing.

d) The purpose of the audit engagement letter

The audit engagement letter serves several crucial purposes:
To define clearly the extent of the auditor’s responsibilities: It outlines the scope of the
audit, the responsibilities of both the auditor and management, and the expected form and
content of the audit report.
Minimize the possibility of any misunderstanding between the client and the auditor:
By documenting the agreed-upon terms, it minimizes the risk of disputes or disagreements
between the auditor and management regarding the scope and objectives of the audit.
Legal and professional requirements: In many jurisdictions, audit engagement letters are
required by professional standards and may have legal implications.
Provide written confirmation of the auditor’s acceptance of appointment, the scope of the
audit and the form of the report.

e) The inherent limitations of an audit

Sampling: Audits typically involve testing a sample of transactions and balances, not the
entire population. This means there's always a risk that material misstatements may exist in the
untested portion.
Judgment: Audit judgments require professional expertise and involve an element of
subjectivity. Different auditors may reach slightly different conclusions based on the same set of
facts.
Collusion and fraud: Sophisticated fraud schemes, particularly those involving collusion
among employees, can be difficult to detect.
Changes in circumstances: Business conditions can change rapidly, and events occurring
after the audit date may significantly impact the financial statements.
f) The difference between Audit risk and audit failure
1.Audit risk: The risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated which can result in audit failure. It's a function of
inherent risk, control risk, and detection risk.During the audit, the auditor needed to perform
adequate procedures to test the valuation of HiFinTec Corporation's inventory.
Factor:
Audit risk is affected by various factors, such as the complexity of the financial statements, the
nature of the business, the quality of internal controls, and the competence and independence of
the auditor.
Outcome:
As a result, the auditor failed to detect that the stock had been overvalued by $5 million, leading
to a material misstatement in the financial statements.
WHILE
2. Audit failure: Occurs when the auditor fails to detect and prevent or correct a material
misstatement in the financial statements, resulting in an inappropriate audit opinion.Audit failure
results in an inaccurate representation of the company's financial position, which can negatively
affect the company and its stakeholders. Various factors, such as inadequate or incomplete audit
procedures, a lack of understanding of the business or industry, fraudulent financial reporting,
management override of internal controls, or independence issues, cause audit failure.
Reference from our case study;
The auditor failed to detect the fraud, which led to questions from Executive Director about the
effectiveness of the auditing process and the reliability of financial reporting.
g) Compare and contrast Porter’s and ACCA models of Audit Expectation Gap
Porter's Model
* Focuses on: The gap between what society expects from the audit and what the audit actually
delivers.
* Key components:
* Assurance gap: The difference between the level of assurance that users desire and the level
of assurance that the audit provides.
* Performance gap: The difference between the level of assurance that the auditor provides and
the level of assurance that the auditor should provide.
 * Expectation gap: The overall gap between what society expects from the audit and what the
audit actually delivers.
ACCA Model
* Focuses on: The gap between user expectations of the audit and their understanding of the
audit process.
* Key components:
* Reasonable assurance: Emphasizes that the audit provides reasonable assurance, not absolute
assurance.
* Professional skepticism: Highlights the importance of the auditor maintaining a questioning
mind and exercising professional skepticism throughout the audit.
* Limitations of the audit: Acknowledges the inherent limitations of an audit, such as the risk
of sampling and the possibility of sophisticated fraud.
Key Differences
* Focus: Porter's model focuses on the level of assurance, while the ACCA model emphasizes
user understanding and expectations.
* Components: The models have slightly different components, with the ACCA model placing
greater emphasis on the role of professional skepticism and the limitations of the audit.
Addressing the Executive Director's Concerns
* Explain the limitations of the audit: Emphasize that the audit provides reasonable assurance,
not absolute assurance, and that there are inherent limitations to any audit.
* Discuss fraud risk assessment: Explain that the audit includes an assessment of fraud risk, but
that sophisticated fraud schemes can be difficult to detect, especially when collusion is involved.
* Highlight the importance of internal controls: Emphasize that management is primarily
responsible for establishing and maintaining effective internal controls to prevent and detect
fraud.
* Explain the role of professional skepticism: Reiterate that the audit was conducted with
professional skepticism, but that unforeseen circumstances can sometimes occur.