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
Designing and Performing Further Audit Procedures
The nature, timing, and extent of further audit procedures are based on, and are responsive <strong>to</strong>, the assessed
risks of material misstatement at the assertion level. This provides a clear linkage between the audi<strong>to</strong>r’s
further audit procedures and the risk assessment.
The first step is <strong>to</strong> review the information obtained <strong>to</strong> date that will form the basis for the design of further
audit procedures. This would include:
• The nature and the reasoning for the assessed risks (such as business and fraud risks) at both the
financial- statement and assertion levels;
• The account balances, classes of transactions, or disclosures that are material <strong>to</strong> the financial statements;
• The need (if any) <strong>to</strong> perform tests of controls. This would occur where substantive procedures alone
cannot provide sufficient appropriate audit evidence at the assertion level;
• The audi<strong>to</strong>r’s understanding of the control environment and control activities. In particular, have any
relevant internal controls been identified that, if tested, would provide an effective response <strong>to</strong> the
assessed risks of material misstatement for a particular assertion; and
• The nature and extent of specific audit procedures that may be required by certain ISAs, or by local rules
and regulations.
Based on the information above, the audi<strong>to</strong>r can design the nature and extent of the procedures <strong>to</strong> be
performed. Some design considerations are addressed below.
Exhibit 9.3-2
Consider
Nature of the
Assertion Being
Addressed
Reasons for the
Assessed Risk
Impact on Audit Procedure Design
What is the most appropriate audit procedure <strong>to</strong> address the particular assertion?
Consider:
• Effectiveness
Evidence for completeness of sales may best be obtained through a test of
controls, whereas evidence <strong>to</strong> support the valuation of inven<strong>to</strong>ry will probably
be obtained with substantive procedures; and
• Reliability of evidence obtained
Provide more reliable evidence for an assertion. A confirmation of receivables
<strong>to</strong> determine existence may provide better evidence than simply examining
invoices or performing some analytical procedures.
What are the underlying reasons for the risk assessments?
This will include consideration of the characteristics of the financial statement area,
the identified and assessed inherent risks, and relevant internal controls. If the
assessed risk appears <strong>to</strong> be low as a result of relevant internal controls having been
designed and implemented, tests of controls could be considered <strong>to</strong> confirm the
assessed risk, and possibly <strong>to</strong> reduce the extent of substantive procedures that would
otherwise be required.