Tymba Notes 2
Tymba Notes 2
Tymba Notes 2
Assess ROMM
TEST OF CONTROL
Satisfactory
Audit report
ISA 320 Materiality : Misstatements, including omissions, are considered to be material if they, individually or
aggregately could reasonable be expected to influence economic decisions of users taken on the basis of fs.
- Materiality is calculated using benchmarks such as 0.5% of revenue, 1% of TA and 5% of PBT. The assessment of
what is material is ultimately a matter of auditor’s professional judgement. It’s affected by auditor’s perception of
financial information, the needs of users of fs and perceived level of risk; the higher risk; the lower the level of
overall materiality.
Performance materiality : The amount set by the auditor at less than materiality for fs as a whole to reduce to an
appropriately low level of probability that the aggregate of uncorrected & undetected misstatements exceeds
materiality for fs as a whole – act as guidelines to undetected missatements
- Aim : reduce the risk of the total of all the errors in balances, transactions and disclosures exceeds overall
materiality.
DOCUMENTING SYSTEM
Questionnaires - Internal Control Q (ICQ) : assess - Quick to prepare – timely - Easy to overstate the level
control exists method for recording system of control present.
- ICEQ : assess effectiveness of - Ensure all control exists – - Std list of Q may miss out
control in place. missing control highlighted unusual ore more bespoke
controls
Flow charts - Graphic illustration of IC. - Easy to view entirely - Difficult to amend as may
-in current file - Use of symbol – effective required chart to redrawn.
identify missing controls - Still need for narrative
notes to accompany charts.
Analytical Procedure – analysis of relationships to identify inconsistencies and unexpected relationships between
financial & non-financial information.
Provide evidence as :
- Is a risk that the auditor express an inappropriate audit opinion when fs are mm.
1. Risk of MM :
Inherent risk : Susceptibility of an assertion abt a class of trans, acc bal, or disclosure (TAD) to a
misstatement which could be material either individually/agg with other misstatement BEFORE
consideration any related controls – usually affected by its nature.
- Estimation account (judgement)
- Prone to misappropriation (theft, damage)
- Laws and regulation
- Motivation to manipulate figures.
Control risk : Risk that a misstatement which could occur in an assertion abt TAD which could be material
individually/agg when with other misstatement, WILL NOT BE PDC on timely basis by entity’s IC/
- No SOD
- No supervision during clock in/out.
- BRS is prepared monthly WITHOUT REVIEWED by FD.
2. Detection risk : Risk that the procedures performed/controllable by auditor to reduce AR to an acceptably
low level will not detect misstatement which exists which could be material, individually/agg with other
misstatement.
- Obtain understanding of entity - eg contact prev auditor to req working papers
Sampling risk : Risk that EA not detect mm bcs did not audit the entire population. How to reduce?
1. Increase sample size
2. Increase audit procedures – perform more testing
Non sampling risk : Risk that EA not detect mm EVEN IF they audit the entire population.
Preconditions of audit :
An attitude that includes questioning mind, being alert to conditions that may indicate possible misstatements
due to error or fraud, and a critical assessment of audit evidence. I.e. Information brings into question the
reliability of documents and responses to enquires
Components Definition
C Control Activities Refers to policy and procedures undertaken by staff in the co to ensure mgt’s
Procedures directives are carried out.
R Risk Assessment Refers how MGT identifies risk, measure the risks, and derive strategy to manage the
Process risks.
This include understanding of how entity responded to risks arising from technology.
I Information It is how depts in co, interact with each other, include software, hardware, security
system system, people and data.
M Monitoring Control A process used by mgt to assess the design & operation of controls over time so thath
ICS does not breakdown.
E Control Includes governance & mgt functions, attitudes, awareness and actions of mgt. It is
Environment where the mgt set the tone of the company by creating culture of honesty and ethical
behavior.
TYPES OF ASSURANCE ENGAGEMENT
IAASB : ISA :
- Does not provide guidance for internal auditors - ISA issued by IAASB
- IAASB;s pronouncement apply to all audits where - ISA differ from local legislation in a specific country,
“T&F” opinion is expressed auditors are encouraged with mgt to comply with ISAs