[AUD] Risk assessment, TOC, Evidence, Final stage

Risk Assessment, Planning

Risk assessment to obtain an understanding of the client and its environment
Risks of material misstatement(IRxCR) are assessed > determine the Nature, Extent, Timing of additional audit procedure

 

Inherent Risk

Accounting is a complex, difficult > IR up

Nonroutine transaction(ex. high-value transaction: buy building) > IR up

New business risk > affects the risk of MM at FS level(various levels)

 

An overall response to address a high-assessed risk of material misstatement

> Assign more experienced, specialized skilled staff(more staff no help)

> Supervision of the audit team

> YE than interim

 

Procedure

Analytical procedure

 (a) enhancing understanding of the client's business/transactions since the last audit date

 (b) identifying areas that may represent specific risks relevant to the audit

 

 

 

Control Risk

Understanding Internal Control: Design, Implementation

 

Risk assessment Procedure(CR)▼

- not dollar

Design effectiveness (understanding IC)

observation, inspection, inquiry >walkthrough(all at once) sampling not proper

*testing segregation of duty

documentation not effective> inquiry/ observation

 

Test Of Control

Operating effectiveness (TOC)

observation, inspection, inquiry, Reperformance(normally completed during the process)

*Tests of the operating effectiveness of controls may be required if any one of the following exist:
1) Risk assessment includes an explanation of the operating effectiveness of controls over compliance
2) Substantive procedures, not enough to support a conclusion
3) required by the applicable Governmental Audit

 

Not to TOC > CR at MAX 

- TOC would not support a decreased level of CR

- Perform TOC inefficient > results in a reduction in planned ST 

 

Evidence, ST

info must contain sufficient detail for the purpose of audit test

info provided should be in complete form and deemed reliable by the auditor

info received must be accurate

 

1. Sufficient & Appropriate Evidence

 

1) Sufficient (Quantity of evidence)

  use professional judgment, consider materiality, audit risk, risk of MM

  inverse relationship bet appropriate evidence

  Persuasive rather than convincing

 

2) Appropriate (Quality of evidence)

  Relevant

  pertain to Audit objective 

  timing of audit procedure

 

  Reliable

  Auditor, External, Internal, Oral

  * Strong, effective controls improve the reliability of data

 

2. Underlying accounting data vs. Corroborating evidence

Underlying accounting data(FS가 작성될때까지의 모든 Data)	Corroborating evidence
- Books of original JE - GL, SL, TB - Related accounting manual - Worksheets - Reconciliation - Sales invoices - contracts	- Confirmations - Written representations - information gathered through inquiry - Board minutes

 

minimal activity during the year > TOD Transaction test

Accounts that are predictable > Analytical procedures (not required ST by SEC)

Independently created the aging of certain accounts > Reperformance

 

 

Final stage

 

Analytical procedures,

> comparison of recorded amounts to auditor expectations

> Reading the financial statements, any unusual or unexpected balances that were not previously identified

Considering the adequacy of the evidence gathered in response to unexpected balances identified in planning

whether the results of any of the audit procedures affect the assessment of the risk of material misstatement due to fraud

 

* Auditor may add/ amend/ change before the end of the retention period, but not delete the audit documentation.