Guide to Using International Standards on Auditing in - IFAC

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<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
Possible Overall Responses <strong>to</strong> Assessed Risks at the Financial Statement Level
Changes in the
Audit Approach
Consider the understanding obtained of the control environment.
If the control environment is effective, the audi<strong>to</strong>r may have more confidence in
internal control and the reliability of audit evidence generated internally within the
entity. This could mean:
• More audit work conducted at an interim date rather than at the period end;
and
• An approach that uses tests of controls as well as substantive procedures
(combined approach).
If the control environment is ineffective, it could result in:
• Conducting more audit procedures as of the period end rather than at an
interim date;
• Obtaining more extensive audit evidence from substantive procedures; and
• Increasing the number of locations <strong>to</strong> be included in the audit scope.
Review
Accounting
Policies being
Used
Evaluate whether the selection and application of accounting policies by the entity,
particularly those related <strong>to</strong> subjective measurements and complex transactions, may
be indicative of fraudulent financial reporting resulting from management’s effort <strong>to</strong>
manage earnings.
CONSIDER POINT
Timing
Overall responses can be developed at the planning stage and then incorporated in<strong>to</strong> the overall audit
strategy. In new engagements, the overall responses can be developed on a preliminary basis during
planning, and later confirmed or changed based on the results of the risk assessment.
Documentation
Establishing the overall audit response and audit strategy in a small entity need not be a complex
or time-consuming exercise. In some cases, both steps could be completed by preparing a brief
memorandum at the completion of the previous audit (assuming it covers all the required matters),
which can be updated later based on discussions with management.