Lesson 5.2 - The auditor's response to risk

Question 1

Fill in the missing words:

Risk of material misstatement at the financial are dealt with by ______

risks of material misstatement at the assertion level are dealt with by _________ (tests of controls and substantive procedures).

Answer 1

a) overall responses

b) conducting further audit procedures

Question 2

In terms of ISA 330: The Auditor’s Response to Assessed Risk, define what is a substantive procedure.

Answer 2

ISA 330, 4 (a):
“substantive procedure is an audit procedure designed to detect material misstatement at the assertion level. Substantive procedures comprise:

i) Tests of details; and
ii) Substantive analytical procedures

Question 3

In terms of ISA 330, what is the objective of the auditor?

Answer 3

The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement, through designing and implementing appropriate responses to those risks.

Question 4

When shall an auditor design and perform tests of controls to obtain sufficient and appropriate audit evidence?

Answer 4

ISA 330, par 8 (a) If the auditor’s assessment of risks of material misstatement at the assertion level includes an expectation that the controls are operating effectively or (b) if substantive procedures alone cannot provide sufficient and appropriate audit evidence at the assertion level.