Podcast
Questions and Answers
What do policies primarily aim to effect within an entity?
What do policies primarily aim to effect within an entity?
- Control over the entity's operations (correct)
- Control over the IT environment
- Control over financial reporting
- Implementation of procedures
What is the primary purpose of procedures in an entity?
What is the primary purpose of procedures in an entity?
- To process information in IT applications
- To develop general IT controls
- To identify inherent risk factors
- To implement policies (correct)
What type of controls support the continued proper operation of the IT environment?
What type of controls support the continued proper operation of the IT environment?
- Inherent risk controls
- Procedural controls
- Information processing controls
- General IT controls (correct)
What do information processing controls directly address?
What do information processing controls directly address?
What is an example of a qualitative inherent risk factor?
What is an example of a qualitative inherent risk factor?
What affects inherent risk due to fraud or error?
What affects inherent risk due to fraud or error?
What is an inherent risk factor related to?
What is an inherent risk factor related to?
What type of inherent risk factor is 'susceptibility to misstatement due to management bias'?
What type of inherent risk factor is 'susceptibility to misstatement due to management bias'?
What is one aspect of the information gathering process for an auditor?
What is one aspect of the information gathering process for an auditor?
What is the primary purpose of performing risk assessment procedures?
What is the primary purpose of performing risk assessment procedures?
What is an example of a control activity?
What is an example of a control activity?
What is the focus of an auditor's understanding of the entity's communication?
What is the focus of an auditor's understanding of the entity's communication?
What is the purpose of identifying controls that address risks of material misstatement?
What is the purpose of identifying controls that address risks of material misstatement?
What is an example of a component of internal control?
What is an example of a component of internal control?
What is the focus of an auditor's understanding of the entity's resources?
What is the focus of an auditor's understanding of the entity's resources?
What is the purpose of evaluating the design of controls?
What is the purpose of evaluating the design of controls?
What is the term used to describe the varying degree of inherent risk for different assertions and related classes of transactions, account balances, and disclosures?
What is the term used to describe the varying degree of inherent risk for different assertions and related classes of transactions, account balances, and disclosures?
What is the focus of ISA 240 in relation to risk assessment procedures and related activities?
What is the focus of ISA 240 in relation to risk assessment procedures and related activities?
What is the nature of the auditor's risk identification and assessment process?
What is the nature of the auditor's risk identification and assessment process?
What is the source of the auditor's initial expectations of risks in the risk identification and assessment process?
What is the source of the auditor's initial expectations of risks in the risk identification and assessment process?
What is the relationship between the auditor's understanding of the entity and its environment, the applicable financial reporting framework, and the entity's system of internal control?
What is the relationship between the auditor's understanding of the entity and its environment, the applicable financial reporting framework, and the entity's system of internal control?
What is the purpose of the auditor's risk assessment process?
What is the purpose of the auditor's risk assessment process?
What is the focus of the requirements in ISA 200?
What is the focus of the requirements in ISA 200?
What is the outcome of the auditor's risk assessment process?
What is the outcome of the auditor's risk assessment process?
What is the primary requirement of ISA 200 in planning and performing an audit?
What is the primary requirement of ISA 200 in planning and performing an audit?
Which type of risk relates to the financial statements as a whole and potentially affects many assertions?
Which type of risk relates to the financial statements as a whole and potentially affects many assertions?
What is the primary purpose of assessing risks of material misstatement at the assertion level?
What is the primary purpose of assessing risks of material misstatement at the assertion level?
What is inherent risk described as?
What is inherent risk described as?
What is control risk described as?
What is control risk described as?
What is the requirement of ISA 200 for assessing risks of material misstatement at the assertion level?
What is the requirement of ISA 200 for assessing risks of material misstatement at the assertion level?
What is the primary objective of assessing risks of material misstatement?
What is the primary objective of assessing risks of material misstatement?
What is the relationship between risks of material misstatement and audit procedures?
What is the relationship between risks of material misstatement and audit procedures?
When making inquiries of those who may have information that is likely to assist in identifying risks of material misstatement, auditors of public sector entities may obtain information from which of the following additional sources?
When making inquiries of those who may have information that is likely to assist in identifying risks of material misstatement, auditors of public sector entities may obtain information from which of the following additional sources?
What is the purpose of making inquiries of the internal audit function, if the function exists?
What is the purpose of making inquiries of the internal audit function, if the function exists?
What is a specific consideration for auditors of public sector entities when making inquiries of the internal audit function?
What is a specific consideration for auditors of public sector entities when making inquiries of the internal audit function?
Why are analytical procedures performed as a risk assessment procedure?
Why are analytical procedures performed as a risk assessment procedure?
What is a specific responsibility of auditors of public sector entities when making inquiries of the internal audit function?
What is a specific responsibility of auditors of public sector entities when making inquiries of the internal audit function?
What is the primary purpose of making inquiries of the internal audit function?
What is the primary purpose of making inquiries of the internal audit function?
When making inquiries of the internal audit function, what is the auditor trying to identify?
When making inquiries of the internal audit function, what is the auditor trying to identify?
What is the ultimate goal of performing analytical procedures as a risk assessment procedure?
What is the ultimate goal of performing analytical procedures as a risk assessment procedure?
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Study Notes
ISA 200 and Audit Planning
- ISA 200 requires auditors to exercise professional judgment in planning and performing an audit with professional skepticism.
- The auditor plans and performs an audit to identify circumstances that may cause the financial statements to be materially misstated.
Risks of Material Misstatement
- Risks at the financial statement level relate to the financial statements as a whole and potentially affect many assertions.
- Risks of material misstatement at the assertion level consist of two components: inherent risk and control risk.
- Inherent risk is the susceptibility of an assertion to a misstatement that could be material, either individually or when aggregated with other misstatements.
- Control risk is the risk that a misstatement will not be prevented, or detected and corrected, on a timely basis by the entity's system of internal control.
Assessing Risks of Material Misstatement
- Risks of material misstatement are assessed at the assertion level to determine the nature, timing, and extent of further audit procedures.
- A separate assessment of inherent risk and control risk is required for each identified risk.
- Inherent risk varies, and the degree to which it varies is referred to as the 'spectrum of inherent risk'.
Risks of Material Misstatement Due to Fraud
- Risks of material misstatement include both those due to error and those due to fraud.
- Further requirements and guidance are included in ISA 240 for risk assessment procedures and related activities to identify, assess, and respond to risks of material misstatement due to fraud.
Risk Identification and Assessment Process
- The auditor's risk identification and assessment process is iterative and dynamic.
- The process involves understanding the entity and its environment, the applicable financial reporting framework, and the entity's system of internal control.
Understanding the Entity and Its Environment
- The auditor obtains an understanding of the entity and its environment, including the identification of policies, procedures, and general information technology (IT) controls.
- The auditor also understands how the entity communicates significant matters that support the preparation of financial statements.
Control Activities
- The auditor obtains an understanding of the control activities component by identifying controls that address risks of material misstatement at the assertion level.
- The auditor evaluates whether the control is properly designed and operating effectively.
Considerations Specific to Public Sector Entities
- Auditors of public sector entities may obtain information from additional sources, such as from auditors involved in performance or other audits related to the entity.
- Inquiries of the internal audit function may assist the auditor in identifying risks of material non-compliance with applicable laws and regulations.
- Analytical procedures help identify inconsistencies, unusual transactions or events, and amounts, ratios, and trends that indicate matters that may have audit implications.
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