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
Areas of inquiry are outlined in the exhibit below.
Exhibit 8.4-1
Interview:
Those Charged
With Governance
(TCWG)
(If Not Involved
in Managing the
Entity)
Management and
Those Responsible
for Financial
Reporting
Key Employees
(Purchasing, Payroll,
Accounting, etc.)
Marketing or Sales
Personnel
Inquire About…
• Environment in which the financial statements are prepared.
• Oversight of management’s processes for identifying and responding <strong>to</strong> the
risks of fraud or error in the entity, and the internal control that management
has established <strong>to</strong> mitigate these risks.
• Knowledge of any actual, suspected, or alleged fraud affecting the entity.
• Consider attending a meeting of those charged with governance and reading
the minutes of their past meetings.
• Management’s assessment of the risk that the financial statements may be
materially misstated due <strong>to</strong> fraud or error, including the nature, extent, and
frequency of such assessments.
• Management’s communication, if any, <strong>to</strong> employees regarding its views on
business practices and ethical behavior.
• The entity’s culture (values and ethics).
• Management’s operating style.
• Management incentive plans.
• Potential for management override.
• Knowledge of fraud or suspected fraud.
• How estimates are prepared.
• The financial statement preparation and review process.
• Management’s communication, if any, <strong>to</strong> those charged with governance.
• Business trends and unusual events.
• The initiating, processing, or recording of complex or unusual transactions.
• The extent of management override (i.e., have these employees ever been
asked <strong>to</strong> override internal controls?).
• The appropriateness/application of the accounting policies used.
• Marketing strategies and sales trends.
• Sales performance incentives.
• Contractual arrangements with cus<strong>to</strong>mers.
• The extent of management override (i.e., have these employees ever been
asked <strong>to</strong> override internal controls or revenue recognition accounting policies?).