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
Tests of Details
When designing substantive procedures <strong>to</strong> respond <strong>to</strong> assessed risks, the audi<strong>to</strong>r would consider a number of
matters, as set out below.
Exhibit 10.2-2
Address
Each Material
Account
Balance, Class of
Transactions, and
Disclosure
Required Audit
Procedures
Need for External
Confirmation
Procedures
Significant Risks
Timing
Description
This is required irrespective of the assessed risks of material misstatement.
This would include any specific procedures necessary <strong>to</strong> comply with <strong>International</strong>
<strong>Standards</strong> on Auditing and any local requirements. A summary of some such
procedures is contained in Volume 1, Chapters 11 <strong>to</strong> 15. Required procedures include:
• Examining material journal entries and other adjustments made during the
course of preparing the financial statements;
• Addressing management override (see Volume 1, Chapter 9.2); and
• Agreeing the financial statements <strong>to</strong> the underlying accounting records.
Consider the need <strong>to</strong> obtain external confirmations <strong>to</strong> address assertions associated
with account balances and their elements (bank balances, investments, receivables,
etc.) or other matters such as:
• Terms of agreements and contracts;
• Transactions between an entity and other parties; and
• Evidence about the absence of certain conditions (such as no “side agreement”
exists on a sales contract).
Also see the discussion on external confirmations below.
Design and perform substantive procedures (tests of detail) that are specifically
responsive <strong>to</strong> the identified risks and provide the high level of audit assurance required.
If procedures are performed before the period end, the remaining period needs <strong>to</strong>
be addressed by performing substantive procedures, combined with tests of controls
or further substantive procedures that provide a reasonable basis for extending
the audit conclusions from the interim date <strong>to</strong> the period end. If unexpected
misstatements are identified at the interim date, modification <strong>to</strong> the planned
remaining procedures needs <strong>to</strong> be considered.
In determining what substantive procedures are most responsive <strong>to</strong> the assessed risks, the audi<strong>to</strong>r may perform:
• Only tests of details; or
• Where there is not a significant risk of material misstatement, only substantive analytical procedures; or
• A combination of tests of details and substantive analytical procedures.
When substantive analytical procedures are performed, the audi<strong>to</strong>r is required <strong>to</strong> establish the reliability
of data from which the audi<strong>to</strong>r’s expectation of recorded amounts or ratios was developed (such as nonfinancial
data).