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