PSA 315

Definitions:

*Assertions
Representation by mgt.
Embodied in the financial statements
Used by auditor to consider potential misstatements

*Internal Control
Process designed, implemented and maintained
by those charged with governance or management & other personnel
Provide reasonable assurance about the achievement of entity's objective
Regarding; reliability of FS,
effectiveness and efficiency of operations
compliance with applicable laws & regulations

*Controls
Refer to any aspects of internal control

*Risk Assessment Procedures

Audit procedures
Performed to obtain understanding of the entity and its environment
Including; internal control
To identify and assess risk of material misstatements (FS & assrtn. lvl)

*Significant Risk
Identified and assessed risk of material misstatement
In auditor's judgment, requires special audit consideration

REQUIREMENTS
Risk Assessment Procedures and Related Activities

~
RAPs is use to provide basis for identification and assessment of risks of MM.
RAPs do not provide sufficient appropriate evidence (basis for audit opinion.)

A1. Understanding the entity is a continous and dynamic process

of; gathering, updating & analyzing information
Understanding established a frame of reference
within which the auditor plan the audit and excercise prof. judgmnt.

A2. RAPs is used to support assessments of the risks of material misstatements

May obtain audit evidence about; classes of transactions
account balances
disclosures
related assertions
operating effectiveness of controls
RAPs and substantive test/test of controls may be performed at the same time

A3. Extent of understanding - Professional judgement

Is the understanding sufficient to meet objective? - primary consideration
The depth of overall understanding is less than what is possessed by mgt.

A5. Auditor is required to perform all RAPs

Auditor is not required to use all RAPs on each aspect of understanding
Other procedures may be performed if help to identify risk of MM.
~
~
RAPs shall include the following:
a. Inquiry
b. Analytical Procedure
c. Observation
d. Inspection

a.)
A6. Inquiry is mostly from mgt. & those responsible for financial reporting
May also be by internal audit function and others within the entity

A7. Different levels of authority = Different perspective & information

A8. Obtaining understanding is a continual and dynamic process

Inquiries occurs throughout the audit engagement.

INQUIRIES OF INTERNAL AUDIT FUNCTIONS

A9. Internal audit function is likely to have obtained insight about;

operations and business risks
control defeciencies
Provide valuable input

Inquiries to IAF are therefore made to decide wether to use or not use
the work on internal audit function to modify the NTE of audit procedure

Projected inquiries might have been inquired by the internal already

A11. Practitioner needs to take into account information from IAF regarding
identified fraud

A12. Appropriate individuals to inquire within IAF

In auditor's judgement are those with;
Appropriate knowledge
Experience
Authority
Periodic meetinges with these indivuals may also be considered.

CONSIDERATIONS SPECIFIC TO PUBLIC SECTOR ENTITIES

A13. Auditors of public sectors might have additional responsibilites regarding;

Internal control
Compliance with applicable laws and regulations

Inquiry can assist identify;

Risk of noncompliance with applicable laws and regulations
Risk of deficiencies in internal controls over financial reporting

b.)
A14. Analytical procedures;
Identify aspects that the auditor was unaware
Assist in assessing the risks of MM
---> for designing and implementing responses to assessed risks
Include both financial and nonfinancial information

A15. Analytical procedures;

Identify the existence of unusual transactions/events/amounts/ratios
---> might indicate audit implications
especially MM due to fraud
A16. When analytical procedure use aggregated data at a high level
result may provide broad initial indication about the existence of MM
In such case, other info and the result must be fused
to assist the auditor in understanding and evaluating the result

CONSIDERATION SPECIFIC TO SMALLER ENTITIES

A17. Some small entities do not have interim or monthly financial info.
In these case, limited analytical procedure for planning audit
inquiry for obtaining some information
Auditor may NEED to plan to perform analytical procedure
to identify and assess risk of MM
when there's an early draft of financial statements

c.)
OBSERVATION AND INSPECTION
A18. Support inquiries
Provide information
~
~