Audit Procedures: Substantive Testing and Assertions

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What is the scope of ISA 330?

The auditor's responsibility to design and implement responses to risks of material misstatement identified in an audit of financial statements.

What are overall responses as per ISA 330?

Designing and implementing responses at the financial statement level.

According to ISA 330, what should the auditor do for assertion level responses?

Design and perform further audit procedures based on assessed risks of material misstatement at the assertion level.

What are some examples of overall responses as provided by ISA 330?

Emphasizing professional skepticism, assigning experienced staff, providing more supervision, using experts, and incorporating unpredictability. Signup and view all the answers

How should the auditor obtain sufficient appropriate evidence regarding assessed risks of material misstatement?

By designing and implementing appropriate responses to those risks. Signup and view all the answers

What is the purpose of ISA 330 in an audit of financial statements?

To guide auditors in designing and implementing responses to assessed risks of material misstatement. Signup and view all the answers

What conditions must be met for an auditor to design and perform tests of controls?

The auditor’s assessment includes an expectation that controls are operating effectively OR Substantive procedures alone cannot provide sufficient audit evidence Signup and view all the answers

What does the nature of an audit procedure refer to?

The purpose (test of controls or substantive procedure) and its type (inspection, observation, inquiry, etc.) Signup and view all the answers

Why is inquiry alone not sufficient to test the operating effectiveness of controls?

Inquiry alone does not provide enough assurance, so other audit procedures are needed. Signup and view all the answers

Why might inquiry combined with inspection or reperformance provide more assurance than inquiry and observation?

Inspection or reperformance can provide more assurance since observation is only relevant at the point in time it is made. Signup and view all the answers

What does timing of an audit procedure refer to?

When the procedure is performed, or the period to which the audit evidence applies. Signup and view all the answers

What does extent of an audit procedure refer to?

The quantity to be performed, such as sample size or number of observations. Signup and view all the answers

What are substantive procedures designed to detect?

Material misstatements at the assertion level. Signup and view all the answers

Why should an auditor design and perform substantive procedures for each material class of transactions, account balance, and disclosure?

Because the auditor's assessment of risk may not identify all risks of material misstatement and there are limitations to internal control, including management override. Signup and view all the answers

What do substantive procedures comprise?

Tests of details (of classes of transactions, account balances, and disclosures) and substantive analytical procedures. Signup and view all the answers

What is the purpose of an audit procedure designed to evaluate the operating effectiveness of controls?

To prevent, detect, and correct material misstatements at the assertion level. Signup and view all the answers

How does the judgmental nature of the auditor's risk assessment impact the need for substantive procedures?

The auditor's judgment may not identify all risks of material misstatement. Signup and view all the answers

What are the inherent limitations to internal control that justify the need for substantive procedures?

Including management override. Signup and view all the answers