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
Consider
Assessed Level
of Risk
Sources of
Information Used
Potential for Dual-
Purpose Tests
Impact on Audit Procedure Design
Is more reliable and relevant audit evidence required for some assessed risks?
The scope of existing procedures may need <strong>to</strong> be expanded, or some different types
of audit procedures may need <strong>to</strong> be combined, <strong>to</strong> provide the assurance necessary.
For example, <strong>to</strong> ensure the existence of a high-value inven<strong>to</strong>ry item, a physical
inspection may be performed in addition <strong>to</strong> examining the supporting documents.
Do the planned audit procedures rely on non-financial information produced by the
entity’s information system?
If so, evidence should be obtained about its accuracy and completeness. For example,
in a high-rise apartment, the number of rental units multiplied by the monthly rent
may be used <strong>to</strong> compare with <strong>to</strong>tal revenues. If so, it would be important <strong>to</strong> ensure
that the number of rental units is factual and that the monthly rents agree <strong>to</strong> the
signed lease contracts.
Would it be efficient <strong>to</strong> perform a test of controls concurrently with a test of details on
the same transaction?
For example, if an invoice was being examined for evidence of approval (tests of
controls), it could also be examined at the same time <strong>to</strong> substantiate other aspects of
the transaction (tests of details).
Use of Assertions in Selecting the Population <strong>to</strong> be Tested
When designing a procedure, the audi<strong>to</strong>r would carefully consider the nature of the assertion for which
evidence is being obtained. This will determine the type of evidence <strong>to</strong> be examined, the nature of the
procedure and the population from which <strong>to</strong> select the sample.
For example, evidence for the existence assertion would be obtained by selecting items that are already
contained in a financial statement amount. Selecting receivable balances for confirmation will provide evidence
that the receivable balance exists. However, selecting items that are already contained in a financial statement
amount would not provide any evidence with respect <strong>to</strong> the completeness assertion.
For completeness, items would be selected from evidence indicating that an item should be included in the
relevant financial statement amount. To determine whether the sales are complete (that is, no unrecorded sales),
the selection of shipping orders and matching them <strong>to</strong> sales invoices would (subject <strong>to</strong> the completeness of the
shipping orders) provide evidence for omitted sales.
Timing of Procedures
Timing refers <strong>to</strong> when audit procedures are performed, or the period or date <strong>to</strong> which the audit evidence applies.
Before or at the Period End?
In most instances (particularly with small entities), audit procedures will be carried out at the period end and
later. In addition, the higher the risks of material misstatement, the more likely it would be for substantive
procedures <strong>to</strong> be performed nearer <strong>to</strong>, or after, the period end.