Observation and inspection should be performed in

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observation and inspection) should be performed in conjunction with enquiry to obtain sufficient appropriate audit evidence regarding the operating effectiveness of controls. If the operating effectiveness of controls was tested at an interim period, obtain audit evidence about significant changes to those controls subsequent to the interim period and document additional audit evidence that should be obtained for the remaining period and your conclusions that the controls remained effective and will be relied on.. 4. We may rely on controls of a service organization (CAS 402) if it can be determined that the controls are relevant and operating effectively. 5. We will plan substantive tests to detect material misstatements that may have occurred and were not detected and corrected by the client's controls. 6. The extent of our substantive tests will depend on whether we have identified specific risk and whether we plan to rely on controls. Regardless of the assessed risk of material misstatement, substantive procedures should be performed for each material class of transactions, account balance and disclosure. If substantive procedures were performed at an interim date, additional substantive procedures or substantive procedures along with tests of controls, should be performed to cover the remaining period to provide a reasonable basis for extending audit conclusions. Components (i.e., accounts within a financial statement item; transactions or adjustments included in an account; and data that underlies transactions or adjustment) may be identified and used to perform substantive procedures. Our substantive procedures consist of analytic procedures, tests of detail and, in some cases, a combination of the two. The nature of the planned test should consider the efficiency and effectiveness with which each type of procedure can be applied, as well as the desired level of assurance to be obtained based on the objective of the procedure (i.e., primary source of evidence versus corroboration). It may be determined that 100% examination is required for a specific account balance if there is significant risk associated with the account, and there are no other means to provide sufficient appropriate audit evidence.
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7. If evidence obtained from performing audit procedures contradicts previous evidence, the risk assessment must be revised and further audit procedures planned and performed. In designing further audit procedures, consider factors such as risk significance; probability of a material misstatement occurring; nature of the class of transactions, account balance or disclosure involved; nature of controls used by the client and whether controls are manual or automated; and; whether we expect to test and rely on controls.
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