Guide to Using International Standards on Auditing in - IFAC

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102 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Observation and inspection: • Support the inquiries made of management and others; and • Provide additional information about the entity and its environment. Observation and inspection procedures ordinarily include a procedure and an application, as outlined in the exhibit below. Exhibit 8.6-1 Procedure Observation Inspection Potential Application Consider observing: • How the entity operates and is organized; • Entity's premises and plant facilities; • Management’s operating style and attitude <strong>to</strong>ward internal control; • Operation of various internal control procedures; and • Compliance with key policies. Consider inspecting documents such as: • Business plans, strategies, and proposals; • Industry studies and media reports on the entity; • Major contracts and commitments; • Regulations and correspondence with regula<strong>to</strong>rs; • Correspondence with lawyers, bankers, and other stakeholders; • Accounting policies and records; • Internal control manuals; • Reports prepared by management (such as performance data and interim financial statements); and • Other reports, such as minutes from meetings of those charged with governance, reports from consultants, etc. 8.7 Design and Implementation of Internal Controls Risk assessment procedures also include the procedures involved in evaluating the design and implementation of relevant internal controls. These procedures are addressed in more detail in Volume 2, Chapter 11. 8.8 Other Sources of Information about Risks Other procedures performed by the audi<strong>to</strong>r may be used for risk assessment purposes. Some typical examples are set out in the following exhibit.
103 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Exhibit 8.8-1 Source Client Acceptance or Continuance Previous Work External Information Audit Team Discussions Description Relevant information obtained from performing preliminary procedures. Relevant experience gained from previous engagements and other types of engagements performed for the entity. This could include: • Areas of concern in previous audits; • Weaknesses in internal control; • Changes in organizational structure, business processes, and internal control systems; and • Past misstatements and whether they were corrected on a timely basis. • Inquiries of the entity’s external legal counsel or valuation experts. • Review of reports prepared by banks or rating agencies. • Information on the industry and state of the economy obtained from Internet searches, trade and economic journals and regula<strong>to</strong>ry and financial publications. Results of team discussion (including the partner) about the susceptibility of the entity’s financial statements <strong>to</strong> material misstatements, including fraud.
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Guide to Using International Standards on Auditing in - IFAC

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