01 Audit in Specialized Industry Overview.pdf

Audit in Specialized Industry AN OVERVIEW By: Josart B. Tubay, CPA, MBA Course Description This course is designed to orient the students in the application of the audit standards techniques and procedures in the risk-based audit process in specialized industries Course Descrip...

Audit in Specialized Industry AN OVERVIEW By: Josart B. Tubay, CPA, MBA Course Description This course is designed to orient the students in the application of the audit standards techniques and procedures in the risk-based audit process in specialized industries Course Description The course will cover the stages of the risk-based audit process, namely risk assessment (preliminary, planning and risk assessment) and risk response (designing TOC and ST of transaction cycles. Intended Learning Outcomes 1. Identify a business in a specialized industry. 2. Differentiate a normal business from a specialized industry. 3. Integrate various standards related in specialized industry. Specialized Industries Not necessarily rare. Not necessarily unusual. Follows specific financial reporting standards. Had established distinct accounting policies. Specialized Industries - Example Agriculture Petroleum Mining Power distribution Banking Telecommunication Insurance Non-profit organization Airlines Education Characteristics 1. High risk (public listed companies) 2. Strict compliance with laws and government 3. Complex accounting procedures Audit Considerations 1. Competence 2. Audit planning 3. Reliance on expert Audit Considerations - Competence An audit firm, audit partner/team should be familiar with the specialized industry. The audit firm should comply with PSQC1. Audit Considerations - Competence The objective of the firm is to establish and maintain a system of quality control to provide it with reasonable assurance that: (PSQC 1.11) (a) The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and (b) Reports issued by the firm or engagement partners are appropriate in the circumstances. Audit Considerations - Competence Larger audit firms are likely to meet the competence requirement for almost any type of industry. Smaller firms may have to carefully consider their competence to take on an audit client in a specialized industry if they have not previously worked with an audit client in the same industry. Audit Considerations - Competence To achieve competence, the auditor should: 1. Have the ability to gain the necessary skills and knowledge. 2. Have experience with regulatory or reportorial requirements. 3. Willing to undergo specific trainings Audit Considerations - Competence The audit firm should also ensure that there is adequate documentation to demonstrate that competence has been considered, and the steps that have been taken to improve competence where necessary, for example through appropriate staff training. (PSQC 1.57-59) Audit Considerations – Audit Planning Identification of the risk of material misstatement in a specialized industry should be approached in the same way as in any other audit. Identification of the risk of material misstatement in a specialized industry should be approached in the same way as in any other audit Audit Considerations – Audit Planning To assist audit team members assigned to a specialized industry client, the audit firm is likely to have: 1. Additional resources available 2. Briefing notes 3. Internal technical guidance on how financial reporting standards should be applied Audit Considerations – Audit Planning It is also important to remember that while there may be specific risks of material misstatement relating to the industry-specific balances and transactions There must also be appropriate consideration of the “normal” balances and transactions. Audit Considerations – Reliance on experts The auditor may plan to use an auditor’s expert to obtain audit evidence. This is quite likely in a specialized industry as despite being competent to perform the engagement, the audit firm may not have the necessary specific expertise in some areas. Audit Considerations – Reliance on experts In this situation, the audit firm must adhere to the requirements and principles of PSA 620, Using the Work of an Auditor’s Expert which deals with matters including the evaluation of the objectivity, competence and capabilities of the auditor’s expert Audit Considerations – Reliance on experts It is particularly important that the auditor evaluates the relevance and adequacy of the expert’s findings or conclusions. There is a danger of over-reliance on the expert’s work; The fact that the audit is of a specialized nature does not mean that the auditor can pass all responsibility over to an expert. Understanding the Lessons Questions: Give an example of a specialized industry. Why is there a need for an audit consideration in specialized industry? If you are to audit a specialized industry, is it rewarding or taxing? THE END