Define audit risk and components of audit risk
1.Audit risk is the risk that the auditor expresses an inappropriate opinion
when the financial statements are materially misstated.
2.Audit risk= inherent risk * control risk * detection risk.
3.Inherent risk is usual affect by the nature of the entity,
such as the company entered a new market or changed product line.
4.Control risk is usual affect by the internal control
which are not prevent or detect on a timely basis.
Preconditions for the audit
1.Whether the financial reporting framework
to be applied in the preparation of client’s financial statements is acceptable.
2.We must obtain the agreement of management
that it acknowledges and understands its responsibility for the following:
preparing the financial statements
in accordance with the applicable financial reporting framework;
to provide auditor with access to all relevant information
for the preparing of the financial statements.
Issue before accepting audit appointment
1.Whether there is any threats compliance with ACCA’s Code of Ethics and Conduct,
such as independent from customers.
2.Whether there are competent to perform the work
and whether they would have appropriate resources available,
as well as any specialist skills or knowledge required
for the audit of the potential client.
3.They need to consider the reputation and integrity of the directors.
4.Consider the level of risk and whether the expected audit fee is adequate
in relation to the risk of auditing it.
Explain why it is important for auditors to communication
throughout the audit with those charged with governance?
1.It assists the auditor and those charged with governance
in understanding matters related to the audit.
2.It helps the auditor in obtaining information
relevant to the audit from those charged with governance.
3.It helps those charged with governance
in fulfilling their responsibility to oversee the financial reporting process.
Matters to be communicated to TCWG
1.The auditor should explain the planned approach to the audit
as well as the audit timetable.
2.Any key audit risks identified during the planning stages should be communicated.
3.Any significant deficiencies in the initial control system identified
should be communicated in writing or verbally.
4.Any suspected frauds and significant difficulties encountered
are identified during the audit.
Auditor’s responsibility of non- compliance
1.Management have responsibility to prevent and detect non-compliance issues.
2.The auditor does have some responsibility with compliance,
especially if it has an impact on the financial statements.
3.Direct effect on the financial statements,
the auditor should obtain sufficient appropriate audit evidence.
4.Indirect effect on the financial statements,
the auditor should perform specified audit procedures.
Auditor’s responsible for fraud and error
1.Auditors are responsible for obtaining reasonable assurance
that the financial statements taken as a whole are free from material misstatement,
whether caused by fraud or error.
2.However, auditors are not responsible for prevent fraud and error
as this is the responsibility of management.
3.In order to detect fraud and errors,
auditors should maintain professional skepticism throughout the work of audit,
but as fraud is always occur as management collude,
some fraud may not be detected by auditors.
The reason for audit documentation
1.It provides evidence for basis of key conclusion.
2.It provides evidence in accordance with ISAs.
3.Assist the engagement team to plan and perform the audit.
4.It enables senior team members to direct, supervise and review the audit work.
5.It enables quality control reviews to be performed.