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procedure) and its type (inspection, observation, inquiry, confirmation, recalculation, reperformance, or analytical review)330A6Timing refers to when a procedure is performed or the period to which audit evidence applies330A7Extent of a procedure is the quantity (e.g. sample size)3307(a)Respond to risks at the assertion level330A9The nature of audit procedures is affected by risk330A10The nature of audit procedures should reflect the reasons for the risk assessment3308, A20–A24Tests of control are performed where the auditor’s assessment of the risk of material misstatement assumes that controls are operating effectively33017, A41If there are deviations from controls, determine if tests of controls provide adequate reliance, or if additional tests of controls are necessary, or if the risk of material misstatement needs to be addressed by substantive procedures33018, A42–A47Substantive procedures must be designed for each material class of transactions, account balance and disclosureThe risk of material misstatement takes account of internal control. Therefore, if tests of controls results are unsatisfactory, substantive procedures may need to be increased5005–7, A1–A33Sufficient appropriate audit evidence5305(i)The tolerable rate of deviation is set by the auditor
Chartered Accountants Program Audit & AssuranceUnit 10 – Activity solutionsPage 10-9 ACTStep 2 – Evaluate the results of the tests of controlsTo evaluate the results of each test of controls, you must calculate the deviation rates and compare them to the tolerable deviation rate set by WB, as follows:Number of exceptions ÷Sample size×100=Deviation rateCalculate the deviation rates using this formula, and then compare the results to WB’s tolerable deviation rates.Test of controlsNumber of exceptionsSample sizeDeviation rate %Tolerable deviation rate %11402.5527858.253850165ISA 330 para. 17 requires that for deviations from controls, you should determine whether:•Tests of controls provide a basis for reliance on controls.•Additional tests of controls are necessary.•The potential risks of material misstatement need to be addressed by substantive procedures.You have been told that additional tests of controls will not be performed. You have also determined that the sample deviation rate exceeds the tolerable deviation rate for tests of controls 2 and 3. Therefore, you conclude that:•Test of controls 1 provides a basis to rely on controls.•Tests of controls 2 and 3 do not allow WB to rely on controls and, therefore, reliance will be placed on substantive procedures.Step 3 – Determine the impact of the tests of controls results on the nature of substantive proceduresISA 330 paras 8 and A46 indicate that tests of controls are used to support the auditor’s assessment of the risk of material misstatement. This means tests of controls are used to support the control risk component of the risk of material misstatement. Refer to the audit risk model:××=CRControl riskIRInherent riskDRDetection riskARAudit risk