Audit - Week 4

Question 1

What are the five components of reducing detection risk?

Answer 1

• increase sample size (do more work)
• improve planning
• assigning more experienced and skilled personnel
• increased supervision and reviews
• application of professional scepticism

Question 2

What are the 5 components of internal control (ISA 315)

Answer 2

1. Entity’s control environment
2. Entity’s risk assessment process
3. Entity’s information system
4. Audit committee and internal audit function
5. Control activities relevant to the audit

Question 3

What are the 3 types of substantive procedures

Answer 3

1. Analytical review
2. Detailed tests of transactions or balances
3. External confirmations

Question 4

9 aspects to consider when getting a detailed understanding of an entity

Answer 4

• industrial or commercial sector and related risks
• impact of technological change on industry
• public interest entity?
• growing or declining entity?
• objectives of the entity and how to achieve them?
• financing/gearing
• nature of its transactions
• subsidiaries/investments/associated companies
• experience and length of tenure of management/employees