Guide to Using International Standards on Auditing in - IFAC
Guide to Using International Standards on Auditing in - IFAC
Guide to Using International Standards on Auditing in - IFAC
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<str<strong>on</strong>g>Guide</str<strong>on</strong>g> <str<strong>on</strong>g>to</str<strong>on</strong>g> <str<strong>on</strong>g>Us<strong>in</strong>g</str<strong>on</strong>g> <str<strong>on</strong>g>Internati<strong>on</strong>al</str<strong>on</strong>g> <str<strong>on</strong>g>Standards</str<strong>on</strong>g> <strong>on</strong> <strong>Audit<strong>in</strong>g</strong> <strong>in</strong> the Audits of Small- and Medium-Sized Entities Volume 1—Core C<strong>on</strong>cepts<br />
The audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r needs <str<strong>on</strong>g>to</str<strong>on</strong>g> perform sufficient risk assessment procedures <str<strong>on</strong>g>to</str<strong>on</strong>g> identify the bus<strong>in</strong>ess and fraud risk<br />
fac<str<strong>on</strong>g>to</str<strong>on</strong>g>rs that could result <strong>in</strong> material misstatement. This <strong>in</strong>cludes c<strong>on</strong>siderati<strong>on</strong> of any events or c<strong>on</strong>diti<strong>on</strong>s that<br />
may cast significant doubt <strong>on</strong> the entity’s ability <str<strong>on</strong>g>to</str<strong>on</strong>g> c<strong>on</strong>t<strong>in</strong>ue as a go<strong>in</strong>g c<strong>on</strong>cern.<br />
The required scope or depth for understand<strong>in</strong>g the entity is set out <strong>in</strong> paragraphs 11 and 12 of ISA 315<br />
(reproduced above). This depth of overall understand<strong>in</strong>g by the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r will be less than that possessed by<br />
management <strong>in</strong> manag<strong>in</strong>g the entity.<br />
CONSIDER POINT<br />
When design<strong>in</strong>g the nature and extent of risk assessment procedures <str<strong>on</strong>g>to</str<strong>on</strong>g> be performed, remember that<br />
some ISAs outl<strong>in</strong>e specific matters <str<strong>on</strong>g>to</str<strong>on</strong>g> be c<strong>on</strong>sidered. Some examples are <strong>in</strong>cluded below:<br />
ISA 240.16 Fraud <strong>in</strong> an audit of f<strong>in</strong>ancial statements<br />
When perform<strong>in</strong>g risk assessment procedures and related activities <str<strong>on</strong>g>to</str<strong>on</strong>g> obta<strong>in</strong> an understand<strong>in</strong>g<br />
of the entity and its envir<strong>on</strong>ment, <strong>in</strong>clud<strong>in</strong>g the entity's <strong>in</strong>ternal c<strong>on</strong>trol, required by ISA 315, the<br />
audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r shall perform the procedures <strong>in</strong> paragraphs 17-24 (of ISA 240) <str<strong>on</strong>g>to</str<strong>on</strong>g> obta<strong>in</strong> <strong>in</strong>formati<strong>on</strong> for use <strong>in</strong><br />
identify<strong>in</strong>g the risks of material misstatement due <str<strong>on</strong>g>to</str<strong>on</strong>g> fraud.<br />
ISA 540.8 <strong>Audit<strong>in</strong>g</strong> account<strong>in</strong>g estimates<br />
When perform<strong>in</strong>g risk assessment procedures and related activities <str<strong>on</strong>g>to</str<strong>on</strong>g> obta<strong>in</strong> an understand<strong>in</strong>g<br />
of the entity and its envir<strong>on</strong>ment, <strong>in</strong>clud<strong>in</strong>g the entity's <strong>in</strong>ternal c<strong>on</strong>trol, as required by ISA 315,<br />
the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r shall obta<strong>in</strong> an understand<strong>in</strong>g of the follow<strong>in</strong>g <strong>in</strong> order <str<strong>on</strong>g>to</str<strong>on</strong>g> provide a basis for the<br />
identificati<strong>on</strong> and assessment of the risks of material misstatement for account<strong>in</strong>g estimates:<br />
(a) The requirements of the applicable f<strong>in</strong>ancial report<strong>in</strong>g framework relevant <str<strong>on</strong>g>to</str<strong>on</strong>g> account<strong>in</strong>g<br />
estimates, <strong>in</strong>clud<strong>in</strong>g related disclosures.<br />
(b) How management identifies those transacti<strong>on</strong>s, events and c<strong>on</strong>diti<strong>on</strong>s that may give rise <str<strong>on</strong>g>to</str<strong>on</strong>g><br />
the need for account<strong>in</strong>g estimates <str<strong>on</strong>g>to</str<strong>on</strong>g> be recognized or disclosed <strong>in</strong> the f<strong>in</strong>ancial statements. In<br />
obta<strong>in</strong><strong>in</strong>g this understand<strong>in</strong>g, the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r shall make <strong>in</strong>quiries of management about changes <strong>in</strong><br />
circumstances that may give rise <str<strong>on</strong>g>to</str<strong>on</strong>g> new, or the need <str<strong>on</strong>g>to</str<strong>on</strong>g> revise exist<strong>in</strong>g, account<strong>in</strong>g estimates.<br />
(c) How management makes the account<strong>in</strong>g estimates, and an understand<strong>in</strong>g of the data <strong>on</strong><br />
which they are based, <strong>in</strong>clud<strong>in</strong>g:<br />
(i) The method, <strong>in</strong>clud<strong>in</strong>g, where applicable, the model, used <strong>in</strong> mak<strong>in</strong>g the account<strong>in</strong>g estimate;<br />
(ii) Relevant c<strong>on</strong>trols;<br />
(iii) Whether management has used an expert;<br />
(iv) The assumpti<strong>on</strong>s underly<strong>in</strong>g the account<strong>in</strong>g estimates;<br />
(v) Whether there has been or ought <str<strong>on</strong>g>to</str<strong>on</strong>g> have been a change from the prior period <strong>in</strong> the<br />
methods for mak<strong>in</strong>g the account<strong>in</strong>g estimates, and if so, why; and<br />
(vi) Whether and, if so, how management has assessed the effect of estimati<strong>on</strong> uncerta<strong>in</strong>ty.<br />
ISA 550.11 Related Parties<br />
As part of the risk assessment procedures and related activities that ISA 315 and ISA 240 require<br />
the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r <str<strong>on</strong>g>to</str<strong>on</strong>g> perform dur<strong>in</strong>g the audit, the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r shall perform the audit procedures and related<br />
activities set out <strong>in</strong> paragraphs 12-17 (of ISA 550) <str<strong>on</strong>g>to</str<strong>on</strong>g> obta<strong>in</strong> <strong>in</strong>formati<strong>on</strong> relevant <str<strong>on</strong>g>to</str<strong>on</strong>g> identify<strong>in</strong>g the<br />
risks of material misstatement associated with related-party relati<strong>on</strong>ships and transacti<strong>on</strong>s.<br />
ISA 570.10 Go<strong>in</strong>g C<strong>on</strong>cern<br />
When perform<strong>in</strong>g risk assessment procedures as required by ISA 315, the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r shall c<strong>on</strong>sider<br />
whether there are events or c<strong>on</strong>diti<strong>on</strong>s that may cast significant doubt <strong>on</strong> the entity’s ability <str<strong>on</strong>g>to</str<strong>on</strong>g><br />
c<strong>on</strong>t<strong>in</strong>ue as a go<strong>in</strong>g c<strong>on</strong>cern.