Objectives strategy related business and audit risks

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objectives, strategy, related business and audit risks and internal controls to the audit plan . The auditor’s preliminary decision concerning control risk determines the level of control testing, which in turn affects the auditor’s substantive tests of the account balances and transactions. Document overall audit strategy and audit plan, which involves documenting the decisions about The auditor documents how the entity is managing its risk (via internal control processes) and the effects of the risks and controls on the planned audit procedures. A U D I T T E S T S Nature Timing Extent
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Document Overall Audit Strategy and Audit Plan
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Supervision of the Audit Engagement partner should: Inform engagement team members of their responsibilities Direct engagement team members to identify and communicate audit issues Review the work of the engagement team members
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Types of Audit Tests Risk Assessment Procedures Used to obtain an understanding of the entity and its environment, including internal control. Tests of Controls Performed to obtain audit evidence about the operating effectiveness of controls in preventing, detecting and correcting material misstatements. Substantive Procedures Detect material misstatements in a transaction class, account balance, and disclosure element of the financial statements.
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Tests of Controls Inquiry Inspection Walk- Through Reperformance Observation
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Tests of Controls Table 3–4 Examples of Internal Controls and Tests of Controls
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Substantive Procedures Substantive Analytical Procedures Evaluations of financial information through analysis of plausible relationships among financial and non- financial data Tests of Details Tests for errors or fraud in individual transactions, account balances and disclosures
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Dual-Purpose Tests Substantive Tests of Transactions Tests of Controls Dual- Purpose Tests
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Materiality – ISA 320 Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Materiality is not an absolute and it is not a black or white issue! The determination of materiality requires professional judgement .
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Steps in Applying Materiality on an Audit Step 1: Determine Overall Materiality Step 2: Determine Performance Materiality Step 3: Evaluate Audit Findings
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Step 1: Determine Overall Materiality The quantitative benchmark for materiality may be a percentage of: Profit before tax.
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