ACCG340_Week5

Welcome to… ACCG340 Auditing and Assurance Services Week • Audit evidence • Auditor’s procedures in response to assessed risks • Audit strategy Learning objectives Discern sufficient, appropriate and relevant audit evidence and audit procedures to obtain this evidence Explain substantive procedures and develop appropriate, specific, practical substantive procedures in responding to assessed risk Describe different audit strategies and determine appropriate nature, timing and extent of audit procedures in responding to assessed risks Pre-engagement activities Planning activities 1.1 1.2 1.3 Accept / reject new client Established terms of engagement Engagement letter 2.1 Obtain knowledge of the business 2.1.1 Preliminary analytical procedures Appraisal of risks, including fraud risk, going concern Estimate of materiality Review of control components 2.4.1 Preliminary evaluation of control environment Develop overall audit plan (i.e develop an audit strategy) in response to risks 2.5.1 Determine reliance on internal controls 2.5.2 Determine extent and nature of testing 2.5.3 Write audit plan Assignment of staff 2.2 2.3 2.4 2.5 2.6 3.1 3.2 Audit evidence 3.3 Opinion formulation and reporting activities Continuous activities Tests of control 3.1.1 Conducts tests 3.1.2 Make final evaluation of internal control 3.1.3 Modify audit approach Substantive testing activities 3.2.1 Conduct substantive tests of transactions and balances 3.2.2 Conduct substantive analytical procedures 3.2.3 Evaluate results of substantive procedures 3.2.4 Modify audit approach Obtain representations 3.3.1 Management 3.3.2 Solicitors 3.3.3 Bank 4.1 4.2 4.3 4.4 Review financial report Review audit results Subsequent events Fraud and error 5.1 5.2 5.3 5.4 Supervise conduct of examinations Review work of assistants Consider appropriateness of continuing relationship with client Make required special communication 5.4.1 Material weaknesses of internal accounting control 5.4.2 Material errors or irregularities Consult with appropriate persons in connection with special problems Document work performed, findings, and conclusions in appropriate working papers Consider going concern 5.5 5.6 5.7 4.5 Related party transactions 4.6 Formulate audit opinion 4.7 Draft issue reports A U D I T P R O C E S S Audit evidence Audit evidence ASA500 Audit evidence is a fundamental concept in auditing by which the auditor achieves the objective of reasonable assurance that none of management’s assertions is materially misstated, and consists of: Underlying accounting data All available corroborating information Books of original entry Documents e.g cheques, authorisations for direct bank transfers, invoices, contracts, etc General and subsidiary Confirmations and other written ledgers representations Worksheets, schedules, Information from inquiry, calculations, etc observations, inspection and physical examination Related accounting All other information obtained or Audit evidence (cont.) ASA500.4 The auditor is required to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion Audit evidence is obtained from performance of: – Risk assessment procedures – Tests of controls (Internal controls) – Substantive testing (Financial information – i.e $) Sufficient and appropriate audit evidence ASA500.5 Sufficient = Appropriate = measure of quantity measure of quality (i.e relevance and reliability) Both are a function of the assessment of risk of material misstatement and are interrelated Types of audit evidence • Audit evidence can take several forms, including: – visual observations – documentary – oral – physical – electronic • Documentary evidence includes: – accounting records and supporting/source documentation – minutes of meetings – confirmations – written representations – analytical procedures results Sources of audit evidence ASA500.A1 & A7-A9 • Evidence can be: – Created by external parties and transmitted directly to auditor – Created by external parties and held by client – Created and held by client – Electronic documents • The nature and source of the evidence affect the level of assurance the auditor derives from the information Reliability of audit evidence 10