Guide to Using International Standards on Auditing in - IFAC

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176 <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 15.2-4 Steps Audi<strong>to</strong>r Response 1. Obtain an understanding of the nature of the act and the circumstances. This should be sufficient <strong>to</strong> evaluate the possible effect on the financial statements. 2. Document the findings and discuss them with management. If non-compliance is believed <strong>to</strong> be intentional and material, the audi<strong>to</strong>r should communicate the finding without delay. When adequate information about suspected non-compliance and the potential effects on the financial statement cannot be verified, the audi<strong>to</strong>r should consider the effect of the lack of sufficient appropriate audit evidence on the audi<strong>to</strong>r’s report. 3. Consider the implications of non-compliance in relation <strong>to</strong> other aspects of the audit. In particular, consider the reliability of management representations. 4. Report the matter <strong>to</strong> the next higher level of authority if it involves senior management or those charged with governance. Where no higher authority exists, the audi<strong>to</strong>r would consider the need <strong>to</strong> obtain legal advice. 5. Express a qualified or an adverse opinion if non-compliance has a material effect on the financial statements, and has not been properly reflected in the financial statements. (See Volume 2, Chapter 23.) Documentation Paragraph # Relevant Extracts from ISAs 250.29 The audi<strong>to</strong>r shall include in the audit documentation identified or suspected non-compliance with laws and regulations and the results of discussion with management and, where applicable, those charged with governance and other parties outside the entity. (Ref: Para. A21) Typical documentation will include: • Copies of relevant records or documents; and • Minutes of discussions held with management, those charged with governance, or other parties outside the entity. 15.3 ISA 402—Audit Considerations Relating <strong>to</strong> an Entity <strong>Using</strong> a Service Organization Paragraph # ISA Objective(s) 402.7 The objectives of the user audi<strong>to</strong>r, when the user entity uses the services of a service organization, are: (a) To obtain an understanding of the nature and significance of the services provided by the service organization and their effect on the user entity’s internal control relevant <strong>to</strong> the audit, sufficient <strong>to</strong> identify and assess the risks of material misstatement; and (b) To design and perform audit procedures responsive <strong>to</strong> those risks.
177 <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 15.3-1 Risk Assessment What services (relevant <strong>to</strong> the audit) are provided by service organizations? What internal controls, relevant <strong>to</strong> the services provided, are in place? To what extent has reliance been placed on controls in place at the service organization? Is a type 1 or 2 report available? Risk Response Can sufficient audit evidence be obtained from within the user entity? If not: at service organization, or on a type 2 report, if available. Inquire about events such as fraud or non-compliance with laws and regulations. Reporting o not make reference <strong>to</strong> work of a service audi<strong>to</strong>r unless audi<strong>to</strong>r's report has been modified. If insufficient appropriate audit evidence was obtained, modify the audi<strong>to</strong>r’s report. Paragraph # Relevant Extracts from ISAs 402.8 For purposes of the ISAs, the following terms have the meanings attributed below: (a) Complementary user entity controls—Controls that the service organization assumes, in the design of its service, will be implemented by user entities, and which, if necessary <strong>to</strong> achieve control objectives, are identified in the description of its system. (b) Report on the description and design of controls at a service organization (referred <strong>to</strong> in this ISA as a type 1 report)—A report that comprises: (i) A description, prepared by management of the service organization, of the service organization’s system, control objectives and related controls that have been designed and implemented as at a specified date; and (ii) A report by the service audi<strong>to</strong>r with the objective of conveying reasonable assurance that includes the service audi<strong>to</strong>r’s opinion on the description of the service organization’s system, control objectives and related controls and the suitability of the design of the controls <strong>to</strong> achieve the specified control objectives. (c) Report on the description, design, and operating effectiveness of controls at a service organization (referred <strong>to</strong> in this ISA as a type 2 report)—A report that comprises: (i) A description, prepared by management of the service organization, of the service organization’s system, control objectives and related controls, their design and implementation as at a specified date or throughout a specified period and, in some cases, their operating effectiveness throughout a specified period; and (ii) A report by the service audi<strong>to</strong>r with the objective of conveying reasonable assurance that includes: a. The service audi<strong>to</strong>r’s opinion on the description of the service organization’s system, control objectives and related controls, the suitability of the design of the controls <strong>to</strong> achieve the specified control objectives, and the operating effectiveness of the controls; and b. A description of the service audi<strong>to</strong>r’s tests of the controls and the results thereof.
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Guide to Using International Standards on Auditing in - IFAC

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