Guide to Using International Standards on Auditing in - IFAC

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182 <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 Paragraph # Relevant Extracts from ISAs 402.19 The user audi<strong>to</strong>r shall inquire of management of the user entity whether the service organization has reported <strong>to</strong> the user entity, or whether the user entity is otherwise aware of, any fraud, non-compliance with laws and regulations or uncorrected misstatements affecting the financial statements of the user entity. The user audi<strong>to</strong>r shall evaluate how such matters affect the nature, timing and extent of the user audi<strong>to</strong>r’s further audit procedures, including the effect on the user audi<strong>to</strong>r’s conclusions and user audi<strong>to</strong>r’s report. (Ref: Para. A41) In responding <strong>to</strong> the assessed risks, the audi<strong>to</strong>r would consider the following matters. Exhibit 15.3-3 Address Can Necessary Evidence Be Obtained from within Entity? Determine Extent of Reliance That Can Be Placed on the Type 1 or Type 2 Report Testing User Records and Controls Obtaining Audit Evidence from the Service Organization Making Inquiries about Significant Events (Fraud, etc.) Description If yes, obtain sufficient appropriate audit evidence concerning the relevant financial statement assertions involved. If no, perform additional procedures <strong>to</strong> obtain evidence, such as using another audi<strong>to</strong>r <strong>to</strong> perform procedures at the service organization on the user audi<strong>to</strong>r’s behalf. • Consider the audi<strong>to</strong>r’s professional competence and independence and adequacy of standards under which the report was issued; • Evaluate whether the description and design of controls at the service organization is at a date or for a period that is appropriate for the user audi<strong>to</strong>r’s purposes; • Evaluate the sufficiency and appropriateness of the evidence provided by the report for the understanding of the user entity’s internal control relevant <strong>to</strong> the audit; and • Determine whether complementary user-entity controls identified by the service organization are relevant <strong>to</strong> the user entity and, if so, obtain an understanding of whether the user entity has designed and implemented such controls. Note that a type 1 report provides no evidence that the internal controls at the service organization operated effectively over a period of time. If a type 2 report is not available, it may be necessary for the audi<strong>to</strong>r <strong>to</strong> perform tests of controls at the service organization, or use another audi<strong>to</strong>r <strong>to</strong> perform such tests. Where possible, obtain sufficient appropriate audit evidence concerning the relevant financial statement assertions from the records held by the user entity. If user records are not sufficient, obtain audit evidence about the operating effectiveness of controls at the service organization by: • Obtaining a type 2 report, if available; • Performing appropriate tests of controls at the service organization; or • <strong>Using</strong> another audi<strong>to</strong>r <strong>to</strong> perform tests of controls at the service organization on behalf of the user audi<strong>to</strong>r. Inquire of management whether they have become aware (or received notice from the service organization) of any fraud, non-compliance with laws and regulations, or uncorrected misstatements that could affect the financial statements.
183 <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 Reporting Paragraph # Relevant Extracts from ISAs 402.20 The user audi<strong>to</strong>r shall modify the opinion in the user audi<strong>to</strong>r’s report in accordance with ISA 705 if the user audi<strong>to</strong>r is unable <strong>to</strong> obtain sufficient appropriate audit evidence regarding the services provided by the service organization relevant <strong>to</strong> the audit of the user entity’s financial statements. (Ref: Para. A42) 402.21 The user audi<strong>to</strong>r shall not refer <strong>to</strong> the work of a service audi<strong>to</strong>r in the user audi<strong>to</strong>r’s report containing an unmodified opinion unless required by law or regulation <strong>to</strong> do so. If such reference is required by law or regulation, the user audi<strong>to</strong>r’s report shall indicate that the reference does not diminish the user audi<strong>to</strong>r’s responsibility for the audit opinion. (Ref: Para. A43) 402.22 If reference <strong>to</strong> the work of a service audi<strong>to</strong>r is relevant <strong>to</strong> an understanding of a modification <strong>to</strong> the user audi<strong>to</strong>r’s opinion, the user audi<strong>to</strong>r’s report shall indicate that such reference does not diminish the user audi<strong>to</strong>r’s responsibility for that opinion. (Ref: Para. A44) When a type 1 or 2 report from a service organization is used, the audi<strong>to</strong>r’s report on the entity would not make reference <strong>to</strong> the service organization’s report unless required by law. However, a modified audi<strong>to</strong>r’s report is appropriate if sufficient appropriate audit evidence, relevant <strong>to</strong> the audit about the service organization, could not be obtained. 15.4 ISA 501—Audit Evidence—Specific Considerations for Selected Items Paragraph # ISA Objective(s) 501.3 The objective of the audi<strong>to</strong>r is <strong>to</strong> obtain sufficient appropriate audit evidence regarding the: (a) Existence and condition of inven<strong>to</strong>ry; (b) Completeness of litigation and claims involving the entity; and (c) Presentation and disclosure of segment information in accordance with the applicable financial reporting framework. Attendance at Physical Inven<strong>to</strong>ry Count Paragraph # Relevant Extracts from ISAs 501.4 If inven<strong>to</strong>ry is material <strong>to</strong> the financial statements, the audi<strong>to</strong>r shall obtain sufficient appropriate audit evidence regarding the existence and condition of inven<strong>to</strong>ry by: (a) Attendance at physical inven<strong>to</strong>ry counting, unless impracticable, <strong>to</strong>: (Ref: Para. A1-A3) (i) Evaluate management’s instructions and procedures for recording and controlling the results of the entity’s physical inven<strong>to</strong>ry counting; (Ref: Para. A4) (ii) Observe the performance of management’s count procedures; (Ref: Para. A5) (iii) Inspect the inven<strong>to</strong>ry; and (Ref: Para. A6) (iv) Perform test counts; and (Ref: Para. A7-A8) (b) Performing audit procedures over the entity’s final inven<strong>to</strong>ry records <strong>to</strong> determine whether they accurately reflect actual inven<strong>to</strong>ry count results.
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Guide to Using International Standards on Auditing in - IFAC

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