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Professional judgment and professional skepticism are required when conducting an audit. Auditors must apply relevant knowledge and experience to make informed decisions and question assumptions with a questioning mind. Some key risks to consider include fraud risks related to the company, related party transactions, and revenue recognition. When auditing impairment of assets, auditors must evaluate fair value estimates and cash flow assumptions. Materiality is determined based on both quantitative and qualitative factors, and risks are assessed for financial statement assertions. Audit sampling involves selecting items so that all have a chance of selection to allow auditors to draw conclusions about the entire population. Sampling risk could affect audit effectiveness or efficiency if conclusions are wrong.
Professional judgment and professional skepticism are required when conducting an audit. Auditors must apply relevant knowledge and experience to make informed decisions and question assumptions with a questioning mind. Some key risks to consider include fraud risks related to the company, related party transactions, and revenue recognition. When auditing impairment of assets, auditors must evaluate fair value estimates and cash flow assumptions. Materiality is determined based on both quantitative and qualitative factors, and risks are assessed for financial statement assertions. Audit sampling involves selecting items so that all have a chance of selection to allow auditors to draw conclusions about the entire population. Sampling risk could affect audit effectiveness or efficiency if conclusions are wrong.
Professional judgment and professional skepticism are required when conducting an audit. Auditors must apply relevant knowledge and experience to make informed decisions and question assumptions with a questioning mind. Some key risks to consider include fraud risks related to the company, related party transactions, and revenue recognition. When auditing impairment of assets, auditors must evaluate fair value estimates and cash flow assumptions. Materiality is determined based on both quantitative and qualitative factors, and risks are assessed for financial statement assertions. Audit sampling involves selecting items so that all have a chance of selection to allow auditors to draw conclusions about the entire population. Sampling risk could affect audit effectiveness or efficiency if conclusions are wrong.
SSA 200.13(k) - appropriate application of relevant training,
knowledge and experience in making informed decisions - estalis!ing materialit" - assessing vario#s t"pes of risks - allocating e$ort etween tests of controls and s#stantive testing - eval#ating e$ectiveness of controls - selecting a#dit proced#res - external in%#ences (&rm c#lt#re and risk management process, state of econom") SSA 200.13(l) - professional skepticism' a (#estioning mind eing alert to conditions w!ic! ma" indicate possile misstatement Appl" on' - #nderl"ing management)s estimates and data - going concern ass#mption and s#se(#ent events - s"stem generated reports, management reports - work of specialists and external experts test for integrit" and acc#rac" of report efore reliance *nder SSA 2+0, a#ditors are re(#ired to consider t!e risk of fra#d t!ro#g!o#t t!e a#dit ,ra#d risks' -place of compan" (emerging markets) -related part" transactions -reven#e recognition (review trends) -alteration of con&rmation' eval#ate appropriateness A#diting impairment of non &nancial assets Step 1' identif" indicators of impairment (,-S 3..12) Step 2' /val#ate fair val#e less cost to sell Step 3' /val#ate pro0ected cas! %ow ass#mptions #sed to determine val#e in #se of an asset Step +' eval#ate risk-free disco#nt rates - e alert to increased sovereign risk as t!e "ields on government sec#rities !ave trended down Step 1' eval#ate market conditions after "ear-end A#dit planning SSA300 - Planning an audit of FS involves estalis!ing overall a#dit strateg" for engagement and developing an a#dit plan SSA 320 para 2 - Misstatements, including omissions are considered to be material if t!e", individ#all" or aggregate, co#ld reasonal" e expected to in%#ence t!e economic decisions of #sers taken on t!e asis of ,S SSA 320 - Assessing risk of material misstatement 2onsider materialit" at ot! overall ,S level and in relation to individ#al acco#nt alances. classes of transactions and disclos#res SSA 31 - !dentif"ing and accessing risk of material misstatements t#roug# understanding t#e entit" and t#e en$ironment 3etermining materialit" 1. 2!oose enc!mark - nat#re of entit" (p#ic 4 !ig!er risk as exposed to more investors) - economic environment (#ncertaint") - owners!ip str#ct#re - &nancing (sec#red loans5 net assets, forward cas! %ows) 2. deciding on t!e val#e - level of p#lic interest - det arrangements - volatilit" of environment - !ig!l" reg#lated5 (!ig! 4 more risk as more e"es looking at "o#. so !ave to do a Assess risk level " ,S assertion' 2ompleteness, existence, acc#rac", val#ation, oligations and rig!ts, presentation A6S 7 8"pe 99 report (:) - -eport on w!et!er t!e control proced#res are fairl" descried, were s#ital" designed to ac!ieve speci&ed control o0ectives, !ad een placed in operations as of a speci&c date, and on w!et!er t!e controls were operating wit! s#;cient e$ectiveness to provide reasonale, #t not asol#te, ass#rance t!at t!e related control o0ectives were ac!ieved d#ring t!e period speci&ed Audit sampling - SSA 30 So t!at all sampling #nits !ave a c!ance of selection in order to provide a#ditor wit! a reasonale as on w!ic! to draw concl#sions ao#t t!e entire pop#lation Sampling risk -isk t!at a#ditor<s concl#sion ased on a sample ma" e di$erent from t!e concl#sion if t!e entire pop#lation were s#0ected to t!e same a#dit proced#re /xamples' 1. Sampling risk t!at a$ect a#dit e$ectiveness a. :ased on res#lts of 8=2, a#ditor concl#ded t!at internal controls are e$ective w!en t!e" are not - :eca#se a#ditor wo#ld !ave red#ced 8=3 w!en s#c! red#ction is inappropriate, leading to ins#;cient evidence eing gat!ered >rong a#dit opinion ma" e expressed . :ased on res#lts of s#stantive proced#res, a#ditor concl#ded t!at t!ere are no material misstatements w!en material misstatements act#all" existed (wrongl" concl#ded ,S are tr#e and fair) 2. Sampling risk t!at a$ects a#dit e;cienc" ?erforming additional work w!ic! ma" e #nnecessar" (increase 8=3 #nnecessaril") a. :ase on test of control, a#ditor concl#ded t!at controls are not operating e$ectivel" w!en t!e" are. @eading to a#ditor to increase extent of 8=3 w!en not necessar" to do so . :ased on 8=3, a#ditor concl#ded t!at a material misstatement exists w!en it does not 4 a$ect a#dit e;cienc", as it wo#ld #s#all" lead to additional work to estalis! t!at initial concl#sions were incorrect -ed#cing non-sampling risk - proper planning - Assign (#ali&ed and experienced a#dit sta$ - Ade(#ate s#pervision Audit risk % risk of material misstatement and detection risk -isk of material misstatements 4 in!erent risk and control risk 3etection risk 4 sampling risk and non sampling risk A- 4 9- A 2- A 3-