This ISA deals with the auditor's responsibility, in an audit of financial statements, to design and implement responses to risks of material misstatement identified and assessed by the auditor in accordance with ISA 315.
objective
The objective of the auditor is to obtain sufficient and appropriate audit evidence regarding the assessed risks of material misstatement by designing and implementing appropriate responses to those risks.
Definitions
to. Substantive procedure. Audit procedure designed to detect material misstatements in claims.
The substantive procedures include:
- Detailed tests. Substantive analytical procedures.
b. Control tests. Audit procedure designed to evaluate the operational effectiveness of controls in the prevention or detection and correction of material misstatements in the statements.
The auditor will design and implement comprehensive responses to respond to the assessed risks of material misstatement in the financial statements.
Overall responses to the assessed risks of material misstatement in the financial statements may consist of:
- Insist with the audit team on the need to maintain professional skepticism Assign employees with more experience or with specific qualifications or call in experts Provide greater supervision Incorporate additional elements of Unpredictability in the selection of subsequent audit procedures to be to be used Modify in general the nature, timing or extent of the audit procedures.
The auditor will design and apply subsequent audit procedures whose nature, timing and extent are based on the assessed risks of material misstatement in the assertions and respond to such risks.
Example:
Review of income of an entity…
- Occurrence vs. Integrity.
- Occurrence vs. Cut (late).
The nature of an AP refers to its object (ie tests of controls or substantive procedure) and not its type (ie inspection, observation, inquiry, confirmation, recalculation, rerun, or analytical procedure).
The timing of a PA refers to the time it is applied, or the period or date to which the audit evidence corresponds.
The extent of an audit procedure refers to the quantitative volume of what has to be done, for example, the sample size or the number of observations of a control activity.
The design and application of subsequent APs, the nature, timing and extent of which are based on and respond to the assessed risks of material misstatement of the assertions, provide a clear match between the subsequent audit procedures and the risk assessment.
For the design of the subsequent audit procedures to be applied, the auditor:
(a) It will consider the reasons for valuation given to the risk of material misstatement in the statements for each type of transaction, accounting balance and information to be disclosed, including:
- The probability that there is a material misstatement due to the characteristics of the corresponding type of transaction, accounting balance or information to be disclosed (i.e. inherent risk), and Whether the relevant controls have been taken into account in the risk assessment (i.e., the control risk), being necessary to determine whether the controls are operating effectively (that is, the auditor intends to rely on the operating effectiveness of controls to determine the nature, timing and extent of the AP).
(b) Obtain more convincing audit evidence the higher the auditor's assessment of risk.
The auditor will design and perform tests of controls … if:
(a)… controls are operating effectively…
(b) Substantive procedures alone can not provide adequate and sufficient audit evidence on the assertions.
Use of audit evidence obtained in an interim period.
If the auditor obtains audit evidence about the operating effectiveness of controls during an interim period, the auditor should:
- You get audit evidence about the changes significant in those checks after the intermediate period; and Determine the additional audit evidence to be obtained for the remaining period.
Sample of 25 tests of operational effectiveness of controls Review period from January to September 2012
Option 1. Proportional review
19 Control tests from January to September
6 Control tests from October to December
Option 2. Full review
25 Control tests from January to September
Document an update of the validity for OCT-DEC of 1 the controls tested (ENE-SEP)
Use of audit evidence obtained in previous years P13 To determine whether it is appropriate to use audit evidence obtained in previous audits on the operating effectiveness of controls and, if so, to determine the time that may elapse before retesting a control, the auditor will consider the following:
- The effectiveness of other elements of internal control (elements)…… manual or automated controls. The effectiveness of the general controls related to "IT". Deviations in the control in previous audits, and changes of personnel that significantly affect the application of the control. Yes the absence of change in a particular control represents a risk because circumstances have changed. The risks of material misstatement and degree of confidence in the control.
Use of Audit Evidence Obtained in Prior Years
If the auditor plans to use audit evidence from a previous audit… the auditor will obtain evidence by combining the inquiries with observation or inspection procedures to confirm knowledge of those controls, and:
- If there have been changes that affect the continuity of the audit evidence from the previous audit, the auditor will perform tests on the controls in the current audit. If there have been no changes, the auditor will test the controls at least once in every three audits, by testing some controls at each audit to avoid the possibility of all the controls that you plan to rely on being tested in a single audit period and no testing being performed in the subsequent two audit periods.
Rotation plan
| Cycles: | 2012 | 2013 | 2014 | 2015 | 2016 |
| Income | X | X | |||
| Expenses | X | X | |||
| Inventories | X | X | |||
| Payroll | X | ||||
| Fixed asset | X | X | |||
| Treasury | X |
Substantive procedures
Regardless of the assessed risks of material misstatement, the auditor will design and apply substantive procedures for each type of transaction, book balance, and material disclosure.
(a) the auditor's risk assessment involves the exercise of judgment, so it may not identify all the risks of material misstatement; and
(b) There are inherent limitations to internal control, including its possible override by management.
Substantive procedures
P19 The auditor will consider whether external confirmation procedures should be applied as substantive audit procedures.
- Bank balances Balances and terms of accounts receivable Stocks held by third parties on consignment Proprietary securities held by lawyers Investments held by third parties Amounts owed to lenders, including the corresponding payment conditions and restrictive clauses Balances and terms of accounts payable.
Substantive procedures related to the financial statement closing process
The auditor's substantive procedures should include the following audit procedures related to the financial statement closing process:
- Match or reconcile the financial statements with the underlying accounting records. Examine the material journal entries and other adjustments made during the preparation of the financial statements.
Substantive procedures that respond to significant risks
If the auditor has determined that an assessed risk of material misstatement of the assertions is a significant risk, the auditor will apply the substantive procedures that specifically respond to that risk. When the approach to significant risk consists solely of substantive procedures, those procedures shall include tests of details.
Evaluation of the sufficiency and adequacy of the audit evidence.
The auditor will conclude whether sufficient and appropriate audit evidence has been obtained.
If the auditor has not obtained sufficient appropriate audit evidence about a material assertion in the financial statements, he or she will attempt to obtain further audit evidence. If the auditor is unable to obtain sufficient appropriate audit evidence, he or she will express a qualified opinion or deny the opinion on the financial statements.
Documentation.
In the audit documentation the auditor will include:
- The global responses to the assessed risks of material misstatement in the financial statements, and the nature, timing and extent of the subsequent audit procedures applied. The connection of said procedures with the risks assessed in the statements; yThe results of the audit procedures, including the conclusions when these are not clear.
