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
The difference between the two levels of risk assessment is illustrated in partial form in the exhibit below.
Exhibit 6.4-2
Financial Statement
Level
Pervasive risks that could
apply <strong>to</strong> many assertions
Financial Statements (Overall)
Low
Assertion Level (partial)
Account
Balances
Inven<strong>to</strong>ry
Cash
Payables
Classes of
Transactions
Revenues
Expenses
Presentation
& Disclosure
Commitments
Related
Parties
Relevant
Assertions
(assess risk for
each assertion)
C
E
A
V
Low
Mod
Low
High
Note : This exhibit uses the combined assertions described in Volume 1, Chapter 6.3.
Assertions are used by the audi<strong>to</strong>r <strong>to</strong> form a basis for:
• Considering the different types of potential misstatements that may occur;
• Assessing the risks of material misstatement; and
• Designing further audit procedures that are responsive <strong>to</strong> the assessed risks.
Exhibit 6.4-3
Use of Assertions
Considering
Types of Potential
Misstatement
Procedures
This would include performing risk assessment procedures <strong>to</strong> identify possible risks of
material misstatement. For example, the audi<strong>to</strong>r might ask questions such as the following:
• Does the asset exist? (Existence)
• Does the entity own it? (Rights and obligations)
• Are all the sales transactions properly recorded? (Completeness)
• Has the inven<strong>to</strong>ry balance been adjusted for slow-moving and obsolete items?
(Valuation)
• Does the payable balance include all known liabilities at the period end?
(Completeness)
• Were transactions recorded in the right period? (Cu<strong>to</strong>ff)
• Are amounts properly presented and disclosed in the financial statements?
(Accuracy)