Icap Training Seminar (As315,330)

ICAP Training Seminar
Training Seminar:
Students of Small and Medium Sized

Practices
February 17, 2007
BDO International
Outline of the Day
• Introduction to Risk
– ISA 315 “Understanding the Entity and Its Environment and Assessing the Risks
of Material Misstatement”
• Responses to Risk
– ISA 330 “Responses to Risk”
• Practical aspects of Planning the Audit Work

– ISA 300/320
The Future is
2
Here… BDO International
In other words…
ISA 240/315 ISA 330

• What could go wrong? • What are we going to do
about it?
The Future is
3
Why?
Risk of Material
Misstatement
Fraud Error
The Future is
4
Our Responsibilities
The Future is
5
The Standard & The Audit
Mandatory team
discussion to be
Professional
held (ISA 300)
Scepticism
Fraud should be
considered in context
of errors/testing results
May want to hold

final discussion at
completion?
The Future is
6
Definition of Risk
Audit Risk =
Inherent Risk x Control Risk x Detection Risk
Risk of Material Misstatement
The Future is
7
ISA 315 - Overview (Para 2, ISA 315)
“The auditor should 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 statements whether due to fraud or error, and
sufficient to design and perform further audit procedures”
The Future is
8
Requirements of ISA 315
Risk assessment procedures and Understanding the

sources of information about the entity entity and its
and its environment, including IC environment including IC
OVERALL REQUIREMENTS
Assessing the risks
of material misstatement
Communicating with
those charged with
governance Documentation
and management
The Future is
9
Risk Assessment
• “…continuous, dynamic process of gathering, updating

and analysing information throughout the audit” (Para
6, ISA 315)
• Planning Meeting
• Risk assessment procedures:
– Enquiries of management and others within the entity
– Analytical procedures
– Observation and inspection
The Future is
10
ISA 330 - requirements
• Overall responses to risks of material

misstatement at the financial statement level
• Audit procedures responsive to risks of
material misstatement at the assertion level
• Evaluating the sufficiency and appropriateness
of audit evidence obtained
• Documentation
The Future is
11
Assertions – how much do you know?
• P&L
– Occurrence
– Completeness
– Accuracy
– Cutoff
– Classification
• BS
– Existence
– Completeness
– Rights & Obligations
– Valuation
– Presentation & Disclosure
The Future is
12
Assessing the risk of material misstatement
Identify risk Relate risk to what

Risk of material
can go wrong at
misstatement the assertion level
at FS and
Consider assertion level Likelihood
magnitude of risks of risks
General Risk Specific Risk
The Future is
13
General Risks and General Controls
General Risks are General Controls

those risks that affect are those controls
multiple financial that are pervasive
statement areas or to the organisation
tend to be pervasive
to the financial
statements.
Information Gathering
The Future is
14
Nature of Procedures
To SA OS
Cs Ps Ps
ASSURANCE
Risk
The Future is
15
ISA 300
• Preliminary engagement activities

• Planning activities
• Initial audit engagements
“The auditor should plan the audit so that the

engagement will be performed in an effective
manner.”
The Future is
16
ISA 320 – Audit Materiality
Planning Materiality
• Materiality refers to the size or nature of a misstatement that, in
the light of the surrounding circumstances, makes it probable that
the judgement of a reasonable user of the financial statements
would have been changed or influenced as a result of the
misstatement.
• Only material misstatements and uncertainties will affect our audit

opinion. Our audit procedures should not therefore be
concerned with detecting misstatements that could not be
material; they need to be focused on obtaining assurance that
material misstatements do not exist
The Future is
17

Icap Training Seminar (As315,330)

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ICAP Training Seminar

Students of Small and Medium Sized

February 17, 2007

Outline of the Day

• Practical aspects of Planning the Audit Work

ISA 240/315 ISA 330

The Standard & The Audit

May want to hold

Risk of Material Misstatement

“The auditor should obtain an understanding of the entity

Requirements of ISA 315

Risk assessment procedures and Understanding the

• “…continuous, dynamic process of gathering, updating

ISA 330 - requirements

• Overall responses to risks of material

Assertions – how much do you know?

Assessing the risk of material misstatement

Identify risk Relate risk to what

General Risk Specific Risk

General Risks and General Controls

General Risks are General Controls

• Preliminary engagement activities

“The auditor should plan the audit so that the

ISA 320 – Audit Materiality

• Only material misstatements and uncertainties will affect our audit

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