Assurance - Planning - Approach & Strategy Consideration

Question 1

What are the two types of audit approaches?

Answer 1

This is the “A” in the RAMP approach
The two types of approaches are
1. Substantive approach
2. Combined audit approach

Question 2

What CAS helps to explain the risk of material misstatement for substantive procedure

Answer 2

• CAS 330 guides to design and implement a response to assess RMM such as:
  a. Substantive procedures - Audit procedure designed to detect material misstatement at the assertion level
  I. Test of detail ii. Substantive Analytical procedure
  b. Test of control: Audit procedures designed to evaluate the operating effectiveness of control in preventing, detecting & correcting a material misstatement

Question 3

What types of approaches to use based on audit risk and when should a substantive approach be used?

Answer 3

For low risk entity = AR(low) = IR(high)CR(low)DR(low) - Combined approach

High risk entity = AR(low) = IR(high) * CR (high) * DR (low) - Substantive approach

A substantive approach should be used when there is no reliance on effective control.
- Internal control over financial reporting is either not reliable or has not been established control (CAS 315)

Question 4

Explain when the combined approach should be used

Answer 4

The combined approach should be used for the operating effectiveness of control of whether or not operating effectiveness of control can be relied on to reduce detection risk

CAS 330 - test of control: auditor assessment of RMM at assertion level includes the expectation and substantive procedures alone cannot provide SAAE

Question 5

What are some other strategies for auditing consideration

Answer 5

1. Timing of the audit planning and audit work
   - Detail risk on system and testing of revenue and expenses start at any time of the year
   - Substantive procedures involve undertaking detailed testing of figures
   - Smaller audit interim and final stage procedures are used:
2. Obtain evidence about the opening balance
   CAS 510.3 Initial Audit Engagement
   a. Opening balance contains misstatements materially affecting the current period
   b. Appropriateness accounting policies reflect the opening balance has been consistently applied current period F/S or change thereof appropriately accounted for.
3. Using the work of an expert
   - Valuation of land and building will require an expert to conduct valuation
   - Constructive contract may require a surveyor to value the work completed
   - Defined benefit plan will require actual valuation to comply with accounting standard

Question 6

When should management use an audit expert

Answer 6

Management should use an audit expert when:
1. To evaluate the competence, capabilities, and objectivity of the expert
2. Understand the field expert
3. Evaluate whether the expert work is adequate and appropriate evidence
CAS 500

Question 7

What should the audit review

Answer 7

The auditor should review
1. Risk of misstatement based on the nature and complexity of the matter
2. Materiality of F/ item being considered
3. Quantity and quality of other available relevant audit evidence
4. Nature and extent to which management can exercise control or influence the work of management expert
5. Whether the management expert is subject to technical performance standards of another professional requirement

Question 8

What is needed to understand work management experts and provide standards to use for audit expert

Answer 8

-The expert is for whether the expert field has areas of specialty that are relevant to audit
- Whether standard or legal requirements apply
- Nature of internal and external data or information used by expert

The use of audit expert is used under standard CAS 620
- If expertise in a field other than accounting or auditing is necessary to obtain SAAE it depends on the matter
- Evaluate the competencies and objectivity of audit expert
- Agree on the work being performed for the audit expert

Question 9

What is the CAS system that helps with the use of internal audit work, and what do external auditors evaluate or determine when to use the work

Answer 9

• CAS 610 is the standard that requires the work carried from an internal auditor based on the nature, timing, and extent of external auditor procedures
• External auditors determine the work used by The work adequately can be used of the purpose of the audit
• How it will affect the nature, timing, or extent of audit procedures

Question 10

Explain what CAS system is used for service organization and the audit for groups of companies

Answer 10

• The service organization provides services such as maintenance of accounting records, payroll processing, information processing
  CAS 402 is the standard that is used
  Under CAS 315 - is used for assessing the RMM in service organizations used for internal control
• Sufficient understanding of internal control directly to the entity can help with
  1. obtain a report that includes a control
  2. Contract/ specific information, visit the service organization

CAS 600 - Group entity that consists of a parent company and several subsidiary companies
- Significant component: group that provides financial significance to the group
Compotent can be:
1. Financial significance to the group
2. Specific nature or circumstance