ACCT4510 Topic 8 **.docx

ACCT4510 Topic 8 **.docx - ACCT4510 Auditing Topic 8 Risk...

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ACCT4510 Auditing Topic 8 Risk Assessment (III): Risk Responses Using Sales and A/R as Illustration Lecture Outline - archives/2013/materials/20130429_module_c_part2.pdf Part A – Basics of risk responses sections 7.8 to 7.10 , section 9.1. 1. (T6, T7) risks can be classified at two levels: General risks (risks at the financial statement level, - do not relate to any particular account) Specific risks (risks at the assertion level, -can be related to some specific accounts). Having assessed inherent risk and control risk, the auditor should perform auditor procedures to respond to those risks. How should the auditor respond to risks at the (a) financial statement level, and (b) assertion level? In addition, what audit strategies and further audit procedures can the auditor adopt and perform? a) For Financial Statement Level • Remind the engagement team to maintain professional skepticism • Assign more senior and experienced staff • Budget more review and supervision -guide to junior staff • Assign an expert if required, for example if computer fraud is suspected • Do not rely on entity’s internal control and use substantive procedures only • Perform audit procedures in unexpected manner – random document checking • Consider resignation from engagement • Collect more pervasive evidence • Making general changes to the nature, timing or extent of audit procedures
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b) For Assertion Level The HKSA 330 (Clarified) says that the auditor shall design and perform appropriate audit procedures whose nature, extent and timing are based on and are responsive to the assessed risks of material misstatement at the assertion level. Further auditing procedure: 1. Test of control i. when IC of our client is good (Timing not important, can do in interim stage) Control risk is low or medium Rely on internal control-> decrease substantive testing Gain a detailed understanding of client’s system of IC?? less audit effort = test less item ii. E-business When Substantive Testing cannot satisfy sufficient and appropriate audit evidence ->TOC **TOC** HKSA 330 (Clarified) Tests of Controls TOC must be performed every 3 years even without changes Better to perform every year will not be possible to obtain sufficient appropriate audit evidence simply from substantive procedures alone. DR=AR/(IRx CR) Steps to apply the audit risk model:??? 2. Substantive-> extensive detailed audit test (testing on transaction and Account balance) When? CR high ; IC weak / higher risk of material misstatement-> Substantive Testing Increase Access most Persuasive of audit evidence Gain minimum knowledge of client’s system of IC?? reduce Detection Risk high risk of material misstatement
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High CR: means that the auditor will not rely on their client’s system of internal controls to prevent and detect material misstatements. [Extend of AT] Involve judgement, low risk, bad debt account, utility expense(no need detail testing) -
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