Set 1 - AU Chapter 9 - Approach

Question 1

What are the two types of audit approach?

Answer 1

Substantive and combined

Combined includes tests of controls

Question 2

What does substantive approach involve?

Answer 2

Designing procedures to try and find risks of MM at the assertion level. Involves:

• tests of details (classes, transactions etc)
• substantive analytical procedures

Question 3

When is the substantive approach used?

Answer 3

When financial statements and controls cannot be relied upon. Control risk has been assessed as HIGH.

Question 4

When is the combined approach used?

Answer 4

Either:

• when controls can be relied upon
• substantive procedures alone cannot be relied upon to provide enough audit evidence at the assertion level

Question 5

When a company has many groups, what is the procedure if component auditors cannot get enough evidence to issue an opinion due to group restrictions (multiple locations etc).

Answer 5

• if new engagement, decline

- if already engaged, continue to extent possible and disclose in the audit report, disclaiming an opinion

Question 6

If a company has many locations, how should audit be prepared?

Answer 6

• based upon the location’s significance and whether it may contain RMM within the group.