Auditing and Assurance Notes Essay

Week 1 Purpose of audit – enhance the degree of confidence of intended users in the financial report. Expression of an opinion by the auditor on whether – the FR is prepared, in all material respects, in accordance with applicable financial reporting framework. Opinion – whether the FR is presented fairly, in all material aspects, give a true and fair view in accordance with the framework. ASA require auditor to exercise professional judgment and maintain professional skepticism throughout the planning and performance of the audit to Identify and assess risk of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, including the entity’s internal control. Obtain sufficient appropriate audit evidence about whether material misstatement exist, through designing and implementing appropriate responses to the assessed risks. Audit process (planning, audit evidence, audit reporting) 1. Planning Understanding the business and determining risk Assessment of the internal controls Determining ‘significant risks’ for which special audit attention needs to be focused 2. Evidence gathering Tests of controls Substantive tests 3. Formation of the audit opinion Planning Risk identification what approaches/ procedure the auditor needs to adopt to reduce audit risk. Plan- so that audit will be performed in an effective manner. Key engagement team members in the planning  appropriate quality control procedures Consideration of comparisons of the entity’s financial information: Comparable information for prior periods  Anticipated results of the entity  Similar industry information Audit Risk- the risk of material misstatement of financial report Assertion level Inherent Risk (IR)  the susceptibility (æ„Ÿå â€"æ€ §) of an assertion(ä ¸ »Ã¥ ¼  ) to material misstatement, assuming there are no related controls, IR factors are generally business risks (BR) affecting a specific account assertion. Control Risk (CR) the risk of an assertion being materially misstated because controls will not prevent, or detect and correct errors on a timely basis. CR is the impact of the presence or absence of effective internal control designed to mitigate entity’s business risk Detection Risk (DR) the risk that the auditor will not detect the material misstatement. Can be reduced by proper planning, assignment of staff, professional scepticism (çâ€"‘éâ€" ®), supervision and review Planning Materiality ASA320 Materiality – no specific criteria for determining materiality, but rather considers it a matter of professional judgement. Determining materiality for planning- 2 stages 1. An appropriate benchmark need to be chosen 2. Risk assessment based on auditor’s knowledge of client’s business