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SA 330: The Auditor's Response to Assessed Risks, :memo: by applying…
SA 330: The Auditor's Response to Assessed Risks
Overall Responses
The auditor shall design and implement overall response to address
The assessed ROMM at FS level
Emphasising to maintain professional skepticism
Assigning more experienced staff
Providing more supervision
Incorporating additional elements of unpredictability in selection of FAP
Making general changes to NTE of AP
The assessed risk of ineffective CE
Conducting more AP as of EOY
Obtaining more extensive AE from substantive procedures
Increasing no. of locations to be Included in audit scope
AP responsive to assessed ROMM at Assertion Level
Design & perform FAP
Nature
Nature of an AP refers to
its purpose
(TOC or substantive procedures)
and its type
(inspection, observation, inquiry, confirmation, recalculation, re-performance, or analytical procedures)
Timing
Performance at interim date or EOY
Higher ROMM > more effective to perform substantive procedure at EOY
Performing AP before EOY — Assists in identifying sig. matters at an early stage
Certain AP can be performed only at or after EOY
Extent
The extent of an AP judged necessary is determined after considering materiality, the assessed risk, and degree of assurance the auditor plans to obtain.
Use of CAATs may enable more extensive checks of transactions and account files.
In designing the FAP to be performed, the auditor shall:
Consider reasons for assessment given to ROMM at the assertion level for each CT-AB-D
Obtain more persuasive AE in areas with higher assessment of risk.
Test of Controls (TOC)
The auditor shall design and perform TOC to obtain SAAE as to the operating effectiveness of relevant controls when:
Auditor's assessment of ROMM includes an expectation that the controls are operating effectively, or
Substantive procedures alone cannot provide SAAE at assertion level.
In designing and performing TOC, the auditor shall consider:
1. Nature and extent of TOC
Perform AP in combination with inquiry, to obtain AE about operating effectiveness of the controls, incl.
How
the controls are applied
The consistency with which
they were applied
By whom or by what means
they were applied
Determine whether the controls to be tested depend upon other (indirect) controls
If so, whether it is necessary to obtain AE supporting the effective operation of these indirect controls
2. Timing of Test of Controls
Particular time or throughout the period
for which the auditor intends to rely on these controls
3. Using AE obtained during an interim period
When the auditor obtains AE about the operating effectiveness of controls during an interim period, the auditor shall:
Obtain AE about significant changes to those controls subsequent to interim period, or
Determine the additional AE to be obtained for interim period
4. Using AE obtained in previous audits
Determine whether it is appropriate
If auditor plans to use, shall obtain AE about
If there have been changes — TOC in current audit
If there have not been changes — TOC at least once in every 3rd audit
Controls over significant risks
When the auditor plans to rely on controls over a significant risk, auditor shall test those controls in the current period.
Evaluating operating effectiveness of controls
Evaluate whether misstatements detected by
substantive procedures indicate that controls are not operating effectively
Deviation from controls
upon which auditor
intends to rely
detected
Shall
make specific inquiries
to understand these matters and their potential consequence
Shall determine whether
TOC that have been performed
provide appropriate basis for reliance
on controls
Whether
additional TOC are necessary
Potential risk of misstatements
needs to be
addressed using substantive procedure
Substantive Procedures
Irrespective of assessed ROMM, the auditor shall design and perform SAP for each CT-AB-D.
Relating to FS closing process
Agreeing or reconciling FS with underlying accounting records
Examining material JE and other adjustments made during course of preparing FS
Responsive to significant risks
Specifically responsive to that risk
When the approach to a sig. risk consists only of SAP, it shall include test of details (TOD)
Timing
When performed at an interim date, shall cover the remaining period by performing
SAP combined with TOC for intervening period
SAP only, if auditor determines that it is sufficient basis for extending the audit conclusions for remaining period
Evaluating sufficiency and appropriateness of AE
If auditor has not obtained SAAE to a material FS assertion, shall attempt to obtain further AE.
If auditor is unable to obtain SAAE, shall express a qualified or disclaimer of opinion.
Considerations while determining appropriateness of evidence about operating effectiveness of controls obtained in previous audits
Effectiveness of other elements of IC incl. CE
Risk arising from characteristics of controls
Effectiveness of general IT controls
Effectiveness of controls and its application by the entity
Whether there have been personnel changes
ROMM and the extent of reliance on controls
:memo:
by applying inquiry in combination with observation or inspection