chapter 10 audit

7/24/2019 Chapter 10 Audit

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CHAPTER 10:

UNDERSTANDING THE ETITY AND ITSENVIRONMENT


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PSA 315 (Clarifed

I! Ri"# A""e""$e%& Pr'ed)re" a%d S')re" '*

I%*'r$a&i'% A+')& &,e E%&i&- a%d I&"E%.ir'%$e%&/ I%l)di% I&" I%&er%al C'%&r'l

(a I%)irie" '* $a%ae$e%& a%d '&,er" 2i&,i% &,e

e%&i&-(+ A%al-&ial Pr'ed)re"

( O+"er.a&i'% a%d I%"e&i'%

PHASE I4C PERORMANCE O RIS6 ASSESSMENTPROCEDURES TO IDENTIY7 ASSESSS RIS6 O MATERIA8MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY


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II! U%der"&a%di% &,e E%&i&- a%d I&" E%.ir'%$e%&/

I%l)di% I&" I%&er%al C'%&r'l

(a Rele.a%& i%d)"&r-/ re)la&'r-/ a%d '&,er e9&er%al *a&'r"(+ Na&)re '* e%&i&- ( Oera&i'%/ '2%er",i" a%d

'.er%a%e "&r)&)re"/ &-e '* i%.e"&$e%&" a%d ,'2 i&"&r)&)red a%d f%a%ed

( E%&i&-" "ele&i'% a%d alia&i'% '* a')%&i% 'liie"

(d E%&i&-" '+;e&i.e" a%d "&ra&eie" a%d rela&ed +)"i%e""ri"#

(e T,e $ea")re$e%& a%d re.ie2 '* &,e e%&i&-" f%a%ial"&a&e$e%&



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4 a&'r &,a& '%"ider i% &,e '.erall a&&ra&i.e%e"" '* &,ei%d)"&r-:


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4 E9a$le '* r'e""e" a% a)di&'r %eed '* )%der"&a%di%:

U"ed &' r')re/ "&'re a%d $a%ae ra2 $a&erial"

U"ed &' $a,i%e/ a""e$+le/ a#ae a%d &e"&r'ed)re"

U"ed &' rea&e de$a%d *'r r'd)&" a%d "er.ie" a%d&' $a%ae rela&i'%" 2i&, )"&'$er"

U"ed &' e"&a+li", '%&a&" &er$" a%d &' +ill a%d'lle& reei.a+le"

U"ed &' &a#e 'rder" a%d deli.er ''d"

A&i.i&ie" er*'r$ed a*&er &,e ''d a%d "er.ie" ,a.e+ee% deli.ered

U"ed &' a)ire a%d $ai%&ai% ,)$a% re"')re a%d&e,%'l'- (Re"ear, De.el'$e%&


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4 E9a$le '* r'e""e" a% a)di&'r %eed '* )%der"&a%di%:

U"ed &' r')re/ "&'re a%d $a%ae ra2 $a&erial"

U"ed &' $a,i%e/ a""e$+le/ a#ae a%d &e"&r'ed)re"

U"ed &' rea&e de$a%d *'r r'd)&" a%d "er.ie" a%d&' $a%ae rela&i'%" 2i&, )"&'$er"

U"ed &' e"&a+li", '%&a&" &er$" a%d &' +ill a%d'lle& reei.a+le"

U"ed &' &a#e 'rder" a%d deli.er ''d"

A&i.i&ie" er*'r$ed a*&er &,e ''d a%d "er.ie" ,a.e+ee% deli.ered

U"ed &' a)ire a%d $ai%&ai% ,)$a% re"')re a%d&e,%'l'- (Re"ear, De.el'$e%&


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4 E9a$le '* $a&&er" a% a)di&'r $a- '%"ider:


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E9i"&e%e '* '+;e&i.e"

I%d)"&r- de.el'$e%&" Ne2 r'd)&" a%d "er.ie"

E9a%"i'% '* &,e +)"i%e""

Ne2 a')%&i% re)ire$e%&"

Re)la&'r- re)ire$e%&"

C)rre%& a%d r'"e&i.e f%a%i%re)ire$e%&"

U"e '* IT

E@e&" '* i$le$e%&i% a "&ra&e-

C! O


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6e- ra&i'" a%d 'era&i% "&a&i"&i"

6e- er*'r$a%e" i%dia&'r" E$l'-ee $ea")re" a%d i%e%&i.e '$e%"a&i'%

'liie"

Tre%d"

U"e '* *'rea"&/ +)de&" a%d .aria%e a%al-"i"

A%al-"& re'r&" a%d redi& ra&i% re'r&"

C'$e&i&'r a%al-"i"

Peri'd4'%4eri'd f%a%ial er*'r$a%e

D! MEASUREMENT AND REVIE? O THE ENTITYSINANCIA8 PERORMANCE


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I%&er%al '%&r'l

Rea"'%a+le a"")ra%e

Relia+le f%a%ial re'r&i%/ eBie%- a%de@e&i.e%e"" '* 'era&i'%"

C'$lia%e 2i&, alia+le la2" a%d re)la&i'%"

(C,a&er 11

E! UNDERSTANDING THE C8IENTS INTERNA8 CONTRO8


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III! Ide%&i*-i% a%d A""e""i% &,e Ri"# '* Ma&erial

Mi""&a&e$e%&

Ide%&ife" ri"#" &,r'),')& &,e r'e"" '* '+&ai%i% a%)%der"&a%di% '* &,e e%&i&- a%d i&" e%.ir'%$e%&"/ i%l)di%rele.a%& '%&r'l" &,a& rela&e &' &,e ri"#"/ a%d +- '%"ideri%&,e la""e" '* &ra%"a&i'%"/ a')%& +ala%e" a%d di"l'")rei% &,e f%a%ial "&a&e$e%&"

Rela&e" &,e ide%&ifed ri"# &' 2,a& a% ' 2r'% a& &,e

a""er&i'%" le.el

C'%"ider" 2,e&,er &,e ri"#" are '* a $a%i&)de &,e ')ldre")l& i% a $a&erial $i""&a&e$e%& '* &,e f%a%ial "&a&e$e%&"

C'%"ider" &,e li#eli,''d &,a& &,e ri"# ')ld re")l&" i% a$a&erial $i""&a&e$e%& '* &,e f%a%ial "&a&e$e%&"



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PSA 315 (Clarifed/ Ae%di9 (E9a$le" '* C'%di&i'%"a%d E.e%&" &,a& Ma- I%dia&e Ri"#" '* Ma&erial

Mi""&a&e$e%&4re*er &' ! 343F

IV! Ma&erial" ?ea#%e"" i% I%&er%al C'%&r'l

Ri"#" '* $a&erial $i""&a&e$e%& &,a& &,e a)di&'r

ide%&ife" a%d 2,i, &,e e%&i&- ,a" %'& '%&r'lled/ 'r *'r2,i, &,e rele.a%& '%&r'l '* i%ade)a&e!

A 2ea#%e"" i% &,e e%&i&-" ri"# a""e""$e%& r'e"" &,a&&,e a)di&'r ide%&ife" a" $a&erial/ 'r &,e a+"e%e '* ari"# a""e""$e%& r'e"" i% &,'"e a"e" 2,ere i& 2')ld

+e ar'ria&e *'r '%e &' ,a.e +ee% e"&a+li",ed



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IV! D')$e%&a&i'%

(a Di")""i'% a$'% &,e e%ae$e%& &ea$(+ 6e- ele$e%&" '* &,e )%der"&a%di% '+&ai%ed

( arara, 11 a%d arara, 143 '* PSA 315

( T,e ide%&ifed a%d a""e""ed ri"#" '* $a&erial$i""&a&e$e%&

(dT,e ri"# ide%&ifed a%d rela&ed '%&r'l" e.al)a&ed a" are")l& '* &,e re)ire$e%&" i% arara," 4 '* PSA315 (Clarifed



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4 A)di& Ri"#

A $a&erial $i""&a&e$e%& i% a% a""er&i'% a+')&

&,e a')%& ,a" ')red T,e a)di&'r" d' %'& de&e& &,e $i""&a&e$e%&

I%,ere%& Ri"#

C'%&r'l Ri"#

De&e&i'% Ri"#

! ASSESING INHERENT RIS6 AND CONTRO8 RIS6 AT THEASSERTION 8EVE8

Audit risk = Inherent risk x Control risk xDetection risk


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4 Re*er" &' &,e ")"e&i+ili&- '* a% a')%& +ala%e &'$a&erial err'r" a"")$i% &,e lie%& d'e" %'& ,a.e a%-rela&ed i%&er%al '%&r'l"!

T' a""e" i%,ere%& ri"#/ &,e a)di&'r )"e"r'*e""i'%al ;)d$e%& &' e.al)a&e %)$er')"*a&'r": A& &,e i%a%ial S&a&e$e%& 8e.el

A& &,e A')%&


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T,i" i" &,e ri"# &,a& a $a&erial err'r i% a% a')%& 2ill

%'& +e re.e%&ed 'r de&e&ed '% a &i$el- +a"i" +- &,elie%&" "-"&e$ '* i%&er%al '%&r'l! T,i" a% %e.er +eer' +ea)"e i%&er%al '%&r'l "-"&e$ a%%'& r'.ide'$le&e a"")ra%e &,a& all $a&erial" err'r" 2ill +ere.e%&ed 'r de&e&ed!

Preli$i%ar- A""e""$e%& '* C'%&r'l Ri"#

D')$e%&a&i'% '* U%der"&a%di% a%dA""e""$e%& '* C'%&r'l Ri"#

CONTRO8 RIS6


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T,i" re*er" &' &,e ri"# &,a& &,e a)di&'r" e9a$i%a&i'% 2ill

%'& de&e& a $a&erial err'r i% a% a')%& +ala%e!

T,i" i" a *)%&i'% '* &,e e@e&i.e%e"" '* &,e a)di&'r".erifa&i'% '* a')%& +ala%e" a%d i" i%=)e%ed +- &,e%a&)re/ &i$i%/ a%d e9&e%& '* &,e a)di&'r" r'ed)re"!

I& i" re"&ri&ed +- er*'r$i% ")+"&a%&i.e &e"&!

DETECTION RIS6

Auditors assessment of controlrisk is:

Hi, Medi)$ 8'2

A)di&'r"a""e""$e%&

'* i%,ere%&ri"#

Hi, 8'2e"& 8'2er 8'2

Medi)$ 8'2er Medi)$ Hi,er

8'2 Medi)$ Hi,er Hi,e"&


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G! USING THE AUDIT RIS6 MODE8 TO DETERMINE THENATURE TIMING/ AND E>TENT O AUDIT PROCEDURES

Audit risk = Inherent risk x Control risk xDetection risk

A)di& Ri"# M'del

S&e" *'ll'2ed i% U"i% &,e A)di& Ri"# M'del &' De&er$i%eAll'2a+le De&e&i'% Ri"#":

AR = IR x CR x DR

DeterminePlanned

Audit Risk

AssessInherent

Risk

AssessControl

Risk

SolveEquation toDetermineAlloa!leDetection

Risk

S&e 1 S&e S&e 3 S&e


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T,e a)di&'r %eed" &' '+&ai% &,e "a$e le.el '*

a"")ra%e i% 'rder &' e9re"" a% )%)alifed 'i%i'% '%&,e f%a%ial "&a&e$e%&" '* +'&, "$all a%d laree%&i&ie"!

S$all +)"i%e""

A')%&i% r'ed)re" $a- +e er*'r$ed +- a*e2 er"'%" 2,' $a- ,a.e +'&, 'era&i% a%d

)"&'dial re"'%"i+ili&ie"/ a%d &,ere*'re"erea&i'% '* d)&ie" $a- +e $i""i% 'r"e.erel- li$i&ed!

AUDIT RIS6 IN SMA88

chapter 10 audit

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