Objective strategies and related business risks 14

13. Objective, strategies and related business risks
14. Observation and inspection: e.g. tracking transactions through the information system
relevant to financial reporting, which may be performed as part of a walkthrough.
15. Internal control: is the label given to the entity’s policies and procedures designed to
provide reasonable assurance about the achievement of the entity’s objectives
a. Active and qualified board of directors and independent audit committee
members
b. Efective risk assessment process
c. Competent and objective internal audit function
d. Proper authorization of transactions
e. Procedures to ensure assets exist
f. Monitoring of controls
16. Assessing the risk of material misstatement.
17. Assess the efectiveness of internal control in order to: potential misstatements and ..

18. Examples of misstatements include:
19. Fraud can be classified into two types:
a. Misstatement resulting from fraudulent financial reporting
b. Misstatements resulting from misappropriation of assets
20. The fraud risk identification process includes:
a. Sources of information about possible fraud―
i. Discussion among the audit team: professional skepticism,
ii. Inquiries of management and others: should consider inquiries from
others within the entity and their parties.
iii. Analytical procedures:
1. Incentirve/pressure
2. Opportunities
3. rationalize
iv. Investigation of unexpected period-end adjustments
v. Identification of fraud risk factors
21. As lower acceptable levels of both audit risk and materiality are established, the auditor
should plan more work on individual account to find smaller errors.