6) Planning & Risk Assessment

ISA 200: Overall objectives of the independent auditor & the conduct of an audit in accordance with international standards on auditing.
1. To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.
2. To report on the financial statements, and communicate as required by the ISA's, in accordance with the auditor's findings.
3. Key requirements for the auditor to obtain reasonable assurance and to express an opinion are:-
  1. ETHICS:- Comply with relevant ethical requirements
  2. PROFESSIONAL SKEPTICISM:- Exercise professional judgement in planning & performing an audit
  3. SUFFICIENT APPROPRIATE AUDIT EVIDENCE & AUDIT RISK:- Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
ISA 300: Planning an audit of financial statements
1. Objective is to plan the audit so that it will be performed in an effective manner
2. OVERALL AUDIT STRATEGY
  1. Characteristics of the engagement
  2. Reporting objectives, timing of the audit and nature of communications
  3. Significant factors, preliminary engagement activities & knowledge gained on other engagements
  4. Nature, timing & extent of resources
3. AUDIT PLAN
  1. Specific procedures to be carried out to implement the strategy and complete the audit
ISA 315: Identifying & assessing the risks of material misstatement through understanding the entity & its environement
1. Understand the entity in order to.....
  1. Identify & assess risks of material misstatement
  2. Design & perform audit procedures
  3. Provide a frame of reference for judgements
  4. WHAT do we need to get an understanding of?
    1. Industry, regulatory & other external factors
    2. Nature of the entity
    3. Selection, application & reasons for changes of accounting policies
      1. 1) Identify Risks
        2) Assess whether the identified risks relate more pervasively to the financial statements as a whole
        3) Relate the risks to what can go wrong at the assertion level
        4) Consider whether the risks are of a magnitude that could result in a material misstatement
        Some risks identified may be SIGNIFICANT risks
        Risk of fraud
        The degree of SUBJECTIVITY in the financial statements
        Unusual transactions
        Significant transactions with a related party
        COMPLEXITY of the transactions
    4. Objectives, strategies & related business risks
    5. Measurement & review of the entity's financial performance
    6. Internal Control
    7. HOW do we get this understanding?
      1. Inquiries of management
      2. Analytical procedures
      3. Observation & inspection
      4. Audit team discussion of the susceptibility of the financial statements to material misstatement
      5. Prior period knowledge
ISA 330 The auditor's responses to assessed risks
1. Objective of the auditor is to 'obtain sufficient appropriate audit evidence re the assessed risks of material misstatement, through designing & implementing appropriate responses to these risks
2. Overall responses
  1. Emphasising to the audit team the need for professional skepticism
  2. Assigning additional/ alternative staff to the audit
  3. Using experts
  4. Providing more supervision on the audit
  5. Incorporating more unpredictability into the audit
3. The evaluation of the control environment will help the auditor determine whether they are going to take a SUBSTANTIVE approach or a COMBINED approach
  1. Further audit procedures designed to address the assessed risks
  2. MUST carry out substantive procedures on material items and also :-
    1. Agreeing the financial statements to the underlying accounting records
    2. Examining material journal entries
    3. Examining other adjustments made in preparing the financial statements

Next up

6) Planning & Risk Assessment

Description

Resource summary

Similar

	Created by littlepaz_2001 about 11 years ago