Lecture_03_S22009 - The University of Sydney ACCT3014...

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Week 3 Lecture c Internal Control Evaluation and the Role of Mitigating Controls The University of Sydney ACCT3014 – Auditing and Assurance Semester 2, 2009 Additional Optional Reading : ICAA Audit Manual, pp. 53-63; 165-197 and 346-350
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1. Pre-engagement activities 1.1 Accept / reject new client 1.2 Established terms of engagement 1.3 Engagement letter 2. Planning activities ASA 300 2.1 Obtain knowledge of the business 2.1.1 Preliminary analytical procedures 2.2 Appraisal of risks, including fraud risk going concern 2.3 Estimate of materiality 2.4 Review of control components – ASA 315 2.4.1 Preliminary evaluation of control environment – ASA 315 2.5 Develop overall audit plan (i.e. develop an audit strategy) in response to risks 2.5.1 Determine reliance on internal controls 2.5.2 Determine extent and nature of testing 2.5.3 Write audit plan 2.6 Assignment of staff 3. Audit evidence 3.1 Tests of control 3.1.1 Conducts tests 3.1.2 Make final evaluation of internal control 3.1.3 Modify audit approach 3.2 Substantive testing activities 3.2.1 Conduct substantive tests of transactions and balances 3.2.2 Conduct substantive analytical procedures 3.2.3 Evaluate results of substantive procedures 3.2.4 Modify audit approach 3.3 Obtain representations 3.3.1 Management 3.3.2 Solicitors 3.3.3 Bank 4. Opinion formulation and reporting activities 4.1 Review financial report 4.5 Related party transactions 4.2 Review audit results 4.6 Formulate audit opinion 4.3 Subsequent events 4.7 Draft issue reports 4.4 Fraud and error 5. Continuous activities 5.1 Supervise conduct of examinations 5.2 Review work of assistants 5.3 Consider appropriateness of continuing relationship with client 5.4 Make required special communication 5.4.1 Material weaknesses of internal accounting control 5.4.2 Material errors or irregularities 5.5 Consult with appropriate persons in connection with special problems 5.6 Document work performed, findings, and conclusions in appropriate working papers 5.7 Consider going concern A U D I T P R O C E S S
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3 ASA 315 para. 5 The auditor shall obtain an understanding of the entity and its environment, including its internal control , sufficient to identify and assess the risks of material misstatement of the financial report whether due to fraud or error, and sufficient to design and perform further audit procedures. Why Auditors Study Internal Control
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4 ASA 315 para. 52 The auditor shall obtain an understanding of internal control relevant to the audit . Why Auditors Study Internal Control
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5 ASA 315 paras. 54 and 55 Internal control is designed and implemented to address identified business risks and consists of the following components: a) the control environment b) the entities risk assessment process c) the information system, including related business processes d) control activities e) monitoring of controls Internal Control
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Lecture_03_S22009 - The University of Sydney ACCT3014...

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