Professional Documents
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2. The auditor should perform the following activities at the beginning of the current audit
engagement:
• Perform procedures regarding the continuance of the client relationship and the specific
audit engagement.
• Evaluate compliance with ethical requirements, including independence.
• Establish an understanding of the terms of the engagement.
Planning Activities
3. The auditor should establish the overall audit strategy for the audit. The overall audit strategy sets
the scope, timing and direction of the audit, and guides the development of the more detailed
audit plan
5. The auditor should develop an audit plan for the audit in order to reduce audit risk to an
acceptably low level.
6. The audit plan is more detailed than the overall audit strategy and includes the nature, timing and
extent of audit procedures to be performed by engagement team members in order to obtain
sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
7. The audit plan includes:
• A description of the nature, timing and extent of planned risk assessment procedures sufficient
to assess the risks of material misstatement as determined under PSA 315, “Understanding the
Entity and its Environment and Assessing the Risks of Material Misstatement.”;
• A description of the nature, timing and extent of planned further audit procedures at the
assertion level for each material class of transactions, account balance, and disclosure, as
determined under PSA 330, “The Auditor’s Procedures in Response to Assessed Risks,”; and
• Such other procedures required to be carried out for the engagement in order to comply with
PSAs
The overall audit strategy and the audit plan should be updated and changed as necessary during the
course of the audit.
1. The auditor should plan the nature, timing and extent of direction and supervision of engagement
team members and review their work.
2. The nature, timing and extent of the direction and supervision of engagement team members and
review of their work vary depending on many factors, including:
3. The auditor plans the nature, timing and extent of direction and supervision of engagement team
members based on the assessed risk of material misstatement.
Documentation
The auditor should document the overall audit strategy and the audit plan, including any significant
changes made during the audit engagement.
1. The auditor may discuss elements of planning with those charged with governance and the entity’s
management.
2. Discussions with those charged with governance ordinarily include the overall audit strategy and
timing of the audit, including any limitations thereon, or any additional requirements.
3. When discussion of matters included in the overall audit strategy or audit plan occur, care is
required in order not to compromise the effectiveness of the audit.
The auditor should perform the following activities prior to starting an initial audit:
1. Perform procedures regarding the acceptance of the client relationship and the specific audit
engagement.
2. Communicate with the previous auditor, where there has been a change of auditors, in compliance
with relevant ethical requirements.
PSA 315 UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT AND ASSESSING THE RISKS OF
MATERIAL MISSTATEMENT
1. The auditor should obtain an understanding of the entity and its environment, including its internal
control, sufficient to identify and assess the risks of material misstatement of the financial
statements whether due to fraud or error, and sufficient to design and perform further audit
procedures.
2. The auditor should perform the following risk assessment procedures to obtain an understanding
of the entity and its environment, including its internal control:
a.) Industry, regulatory, and other external factors, including the applicable financial reporting
framework.
b.) Nature of the entity, including the entity’s selection and application of accounting policies.
c.) Objectives and strategies and the related business risks that may result in a material
misstatement of the financial statements.
d.) Measurement and review of the entity’s financial performance.
e.) Internal control.
INTERNAL CONTROL
1. Internal control is the process designed and effected by those charged with governance,
management, and other personnel to provide reasonable assurance about the achievement of the
entity’s objectives with regard to:
• Reliability of financial reporting;
• Effectiveness and efficiency of operations; and • Compliance with
applicable laws and regulations.
The auditor should obtain an understanding of the entity’s risk assessment process, i.e., the entity’
process for identifying business risks relevant to financial reporting objectives and deciding about
actions to address those risks, and the results thereof.
The auditor should obtain an understanding of the information system, including the related
business processes, relevant to financial reporting, including the following areas:
• The classes of transactions in the entity’s operations that is significant to the financial
statements.
• The procedures, within both IT and manual systems, by which those transactions are
initiated, recorded, processed and reported in the financial statements.
• The related accounting records, whether electronic or manual, supporting information, and
specific accounts in the financial statements, in respect of initiating, recording, processing
and reporting transactions.
• How the information system captures events and conditions, other than classes of
transactions that are significant to the financial statements.
• The financial reporting process used to prepare the entity’s financial statements, including
significant accounting estimates and disclosures.
Control activities are the policies and procedures to help ensure that management directives are
carried out. Examples of control activities include those relating to the following:
• Authorization
• Performance reviews.
• Information processing.
• Physical controls.
• Segregation of duties.
Monitoring of controls involves assessing the design and operation of controls on a timely basis
and taking the necessary corrective actions modified for changes in conditions.
1. The auditor should identify and assess the risks of material misstatement at the financial
statements level, and at the assertion level for classes of transactions, account balances,
and disclosures.
2. The auditor:
• Identifies risks throughout the process of obtaining an understanding of the entity and its
environment, including relevant controls that relate to the risks, and by considering the
classes of transactions, account balances, and disclosures in the financial statements;
• Relates the identified risks to what can go wrong at the assertion level;
• Considers whether the risks are of a magnitude that could result in a material misstatement
of the financial statements; and
• Considers the likelihood that the risks could result in a material misstatement of the
financial statements.
PSA 330
THE AUDITOR’S PROCEDURES IN REPONSE TO ASSESSED RISKS
Overall responses
1. The auditor should determine overall responses to address the risks of material misstatement at
the financial statement level. Such responses may include:
• Emphasizing to the audit team the need to maintain professional skepticism n
gathering and evaluating audit evidence
• Assigning more experienced staff or those with special skills or using experts
• Providing more supervision
• Incorporating additional elements of unpredictability in the selection of further
audit procedures to be performed
• Making general changes to the nature, timing or extent of audit procedures
Timing refers to when audit procedures are performed or the period or date to which the audit
evidence applies.
Extent includes the quantity of a specific audit procedure to be performed.
TESTS OF CONTROLS
1. The auditor is required to perform tests of controls when:
a. The auditor’s risk assessment includes an expectation of the operating effectiveness
of controls; or
b. When the substantive procedures alone do not provide sufficient appropriate audit
evidence at the assertion level
2. Tests of the operating effectiveness of controls are performed only on those controls that
the auditor has determined are suitably designed to prevent, or detect and correct, a
material misstatement in an assertion
3. Testing the operating effectiveness of controls includes obtaining evidence about:
a. How controls were applied at relevant times during the period under audit;
b. The consistency with which they were applied; and
c. By whom or by what means they were applied.
SUBSTANTIVE PROCEDURES
1. Substantive test procedures are performed in order to detect material misstatements at the
assertion level, and include:
• Tests of details of classes of transactions, account balances, and disclosures; and
• Substantive analytical procedures
2. The auditor’s substantive procedures should include the following audit procedures related to
the financial statement closing process:
• Agreeing or reconciling the financial statements with accounting records; and
• Examining material journal entries and other adjustments made during the
course of preparing the financial statements
3. The auditor should perform audit procedures to evaluate whether the overall presentation of
the financial statements, including the related disclosures, are in accordance with the applicable
financial reporting framework.
Documentation
1. The auditor should document:
• The overall responses to address the assessed risks of material misstatement at
the financial statement level and the nature, timing, and extent of the further
audit procedures;
• The linkage of those procedures with the assessed risks at the assertion level;
and
• The results of the audit procedures
2. If the auditor plans to use audit evidence about the operating effectiveness of controls obtained
in prior audits, the auditor should document the conclusions reached with regard to relying on
such controls that were tested in a prior audit.
3. The auditor’s documentation should demonstrate that the financial statements agree or
reconcile with the underlying accounting records.