PSA 315 "UNDERSTANDING THE ENTITY
AND ITS ENVIRONMENT AND ASSESSING
THE RISKS OF MATERIAL MISSTATEMENT"
Requirements
Risk assessment procedures and sources of information about the entity and its environment, including its internal control
Understanding the entity and its environment, including its internal control
Assessing the risks of material misstatement
Communicating with those charged with governance and management
Documentation
1.) Risk assessment procedures and sources of information about the entity and its environment, including its internal control
RISK ASSESSMENT PROCEDURES
2.) Understanding the entity and its environment, including its internal control
3.) Assessing the risks of material misstatement
4.) Communicating with those charged with governance and management
5.) Documentation
DISCUSSION AMONG THE ENGAGEMENT TEAM
INDUSTRY, REGULATORY AND OTHER EXTERNAL FACTORS
NATURE OF THE ENTITY
OBJECTIVES AND STRATEGIES AND RELATED BUSINESS RISKS
MEASUREMENT AND REVIEW OF THE ENTITY’S FINANCIAL PERFORMANCE
INTERNAL CONTROL
Components
control environment: foundation for effective internal control
the entity’s risk assessment process: determines which risks should be managed
information system, including the related business processes,relevant to financial reporting, and communication
control activities: ensures mgt directives are carried out
monitoring of controls: assess effectiveness
RISKS FOR WHICH SUBSTANTIVE PROCEDURES ALONE DO NOT PROVIDE SUFFICIENT APPROPRIATE AUDIT EVIDENCE
Other Important Notes
Effective Date: December 15, 2004
Acknowledgement: no significant differences between this PSA and ISA 315
Public Sector Perspective
report on compliance with Code of Practice
review of internal controls may be broader and more detailed
internal control weaknesses may have to be reported to the legislature or other governing body
inquiries of management and others within the entity
analytical procedures
observation and inspection
about the susceptibility of the FS to material misstatements
jurisdiction in whch the entity is registered or operates
refers to entity's operations, etc.
strategies: operational approaches to achieve objectives
business risks: actions or inactions affecting efficiency
monitoring of controls: effective operation of internal control
measurement&review: business performance meeting the objectives
SIGNIFICANT RISKS THAT REQUIRE SPECIAL AUDIT CONSIDERATION
non-routine transactions: unsual
judgmental matters: acctg estimate is needed
REVISION OF RISK ASSESSMENT
includes the material weaknesses in the internal control
the discussion and decisions reached
key elements of the understanding
identified risk @ FS level and @ Assertion level
identified risks and related controls evaluated