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THE AUDITOR’S

RESPONSES TO
ASSESSED RISKS
ISA 330
Auditor ‘s Responsibility
• ISA 330 deals with the responsibilities faced
by the auditor in designing & implementing
audit procedures which specifically respond
to the RMM.
The Two Fundamental Processes
Substantive Procedures
An audit procedure designed to detect material
misstatements at the assertion level.
It comprises:
1. Test of Details (of classes of transactions, account
balances & disclosures);
2. Substantive Analytical Procedures
Tests of Controls
 An audit procedure designed to evaluate the
operating effectiveness of controls in preventing, or
detecting and correcting, material misstatements at
the assertion level.
“Responsive to the assessed RMM”
Relates to the auditor’s approach for
designing and performing further audit
procedures.
“Responsive to the assessed RMM”
The auditor may consider that TOC would not
be appropriate and, thus, gather sufficient
appropriate audit evidence from wholly
substantive approach.
Ineffective
Substantive Approach
Where the auditor considers a wholly
substantive approach appropriate, the auditor
shall be satisfied that performing only
substantive procedures would reduce the
RMM to an acceptably low level.

The audit procedures must be responsive to the


assessed level of RMM at both the assertion
level and at the financial statement level.
At the Assertion Level

The auditor should consider both


inherent risk and control risk.
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Recurring Audits and TOC
• In some jurisdictions, detailed testing of
internal controls is only required in every third
audit and indeed ISA 330 recommends
detailed testing of IC every third audit.
• Others may recommend shorter or longer
intervening periods to undertake more
rigorous tests of IC.
The factors too consider TOC are generally:

• The risk of material misstatement


• The general operating effectiveness of the IC
• The extent of reliance on the IC
• the effectiveness of general IT related IC
• The application of the IC by the entity.
Evaluating the Operating Effectiveness of IC

• The auditor needs to assess whether


misstatements that have been detected by
way of substantive procedures are indicative
that the IC are not operating as effectively as
they should be.
Extent TOC

Depends on the size and


complexity of the audit
assigment.
Substantive Procedures
• Are detailed procedures used by auditors to
collect audit evidence that the assertions
made by management in the F/S (both figures
& disclosures) are reliable and are in
accordance with the applicable financial
reporting framework and relevant legislation.
Timing of Tests
• Interim Periods
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