Modaudp Units 6 - 8

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- based on performance

PSA 315 indicators)


- Global environment
Risks -> drives where to concentrate on - Possible trade
when doing the audit tensions
- Link risk to an account or an
Identifying risks assertion
- If wrong
- Wrong audit strategy Inherent risk
- Could get sued for wrong opinion - Some characteristic of the client
increases risk of misstatement/error
Objective - Ex. sales bonuses based on
- Plan level of sales
- What
- How much Key takeaways
- Understand client
Requirements - Work as team to brainstorm risks
- Identify and assess risks of material - Assess risks to find significant ones
misstatement - Document findings and
- Fraud justifications/explanations
- Error
- Look at financial statements and
assertion levels

Risks of Material Misstatement


- Graph probablity/likelihood and the
extent of its impact
- Not look for every risk
- Looking for top most​ significant ​risks
- 5-7 ish daw
- Consider whether inherent risks

Significant risk
- Risk of misstatement/error in FS
- How to identify:
- Know your client (their bg,
the industry they operate in)
- Know operations
(multinational; has lots of
intangible assets?;
management with bonuses
ASA 240 - FRAUD
Conducted by employees or
Auditor Responsibilities management
Relating to Fraud
Management could override any
internal controls
- Reasonable assurance but not a
guarantee (not everything is Professional skepticism
tested) - Must have questioning mind
- Fraud - Does thsi make sense?
- Intention to mislead or - Evidence appropriate?
deceive
- Fraudulent financial Fraud
reporting - Identify risks of misstatement due
- Stealing to fraud
- Coellect evidence
Responsibility for - REspond appropriately if suspect
prevention/detection of fraud fraud
- Those charged with governance
- Management Talk with management, TCWG
- Board of directors Check unusual/unexpected
- Responsibility of designing relationships
internal controls
Auditor unable to continue
Auditor responsibilities engagement
- REasonable assurance
- Looking for errors and fraud Communications to management and
those charged with governance
Limitations of an audit - Must disclose to auditor any risk
- Might not be able to detect fraud factors
- Management colluding
- Concealment Reporting fraud to an appropriate
authority outside entity
Truth? Does evidence match? - Oil spill; environmental regulatory
body
Consider whether there is potential
opportunity for fraud
Fraud red flags - auditor
responsibilities Sufficient appropriate audit evidence
regarding compliance with provisions of
- Checklist of red flags those laws and regulations generally
- Obligated to investigate if you recognized to have a ​direct effect
see an
opportunity/incentive/pressure/rat w/ other laws and regulations
ionalization Identify what has a material effect on
- Common approach: work through financial report
checklist of all risks Inspect w/ licensing or regulatory
- List not exhaustive authorities
- Can’t do nothing when it comes
potential risk of fraud Talk with TCWG
- Written representation
- Effects to be considered

Suspect non-compliance
- Understand
PSA 250 - Evaluate effect
- Discuss with appropriate level of
Scope management
- Consider laws and regulations
- Esp. industry specific Criminal
- Thinka bout notifying authorities
Material misstatement if they did not
comply

Not responsible for preventing


non-compliance

Look for potential misstatements arising


for non-compliance

Direct and indirect effect (different


requirements)

Links to 315
PSA 330 - Auditor’s
Response to Assessed
Risk Evaluating Operating
effectiveness

Design and perform further audit Sufficient


procedures - Volume; is there enough
- Nature timing and extent evidence to form an
- Responsive to assessed risks of opinion?
material msistatement - Appropriate: were the right
procedures used to gather
In designing FAP, that evidence?
Consider cause of inherent risk
- Determines how to test/gather Qualified opinion
evidence

Tests of Controls
- Control risk is low or medium
- Test operating effectiveness
- Do the controls owrk? Do they do
what they’re supposed to do?

Tests controls
- Appliedat relevant times during
period? All year?
- Consistency?
- By whom? By what means?

Timing
- Look at evidence

Interim period
- ¾ throughout the year
-

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