Advance Audit

and Assurance -
INT (P7) Notes
MEGHA BHANSALI CLASSES

Index
Chapter No Topic Page No

1 Regulatory Environment 3-5

2 Money Laundering 6-7

3 Code of ethics and conduct 8-11

4 Professional responsibilities and liability 12-15

5 Quality Management 16-19

6 Professional Appointment 20-23

7 Planning, materiality and Risk 24-27

8 Evidence and Testing 29-31

9 Audit Procedures and Obtaining Evidence 32-61

10 Using the work of others 62-63

11 Group Audit 64-66

12 Completion and Review 67-71

13 Auditor’s Reports 72-75

14 Communicating with Those Charged with 76-77

Governance
15 Audit related and Assurance services 78-80

16 Reviews and Related Services 81-83

17 Prospective Financial Information 84

18 Forensic Audit 85

19 Social, Environmental, Sustainability and Integrated 86-88

Reporting
20 Audit in the Public Sector 89

21 Current Issues and Developments 90-94

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Chapter 1
Regulatory Environment
Regulatory bodies of accountants:
➔ The International Auditing and Assurance Standard Boards (IAASB) sets high quality
international standards for auditing, assurance and quality management that
strengthen public confidence in the global profession.
➔ The International Accounting Standard Board (IASB) is committed to developing, in
the public interest, a single set of high-quality, understandable and enforceable global
accounting standards that require transparent and comparable information in general
purpose financial statements.
➔ The International Ethics Standards Board for Accountants (IESBA) sets high quality,
internationally appropriate ethics standards for professional accountants, including
independence requirement
➔ The Sarbanes Oxley Act (SOX) in the US, Public Company Accounting Oversight
Board, who create standards for listed entities and conduct inspections of audit firms'
work.
➔ Organisation for Economic Cooperation and Development (OECD) promotes good
governance in the public service and in corporate activity
➔ The Financial Action Task Force on Money Laundering (FATF) is an inter-
governmental body whose purpose is the development and promotion of national and
international policies to combat money laundering and terrorist financing.
Up-to-date information concerning IAASB and IESBA initiatives (i.e. current issues that may
be examined) can be found also at [Link].
Regulatory bodies of companies (Corporate Governance):
• System by which business is governed and controlled
• Objective: Enhance the value of shareholder
• Mandatory for listed companies
• To keep a tab on mismanagement of company resources, missed opportunities and
poor decision-making or fraudulent activities
• Improving corporate governance is crucial to a company's ability to generate
sustainable growth in the future.
• Strong corporate governance helps reduce this risk
There are two bodies that govern a company:
A. Board of directors: They manage the B. Audit committee: Overviews the
entire functioning of a company; internal controls, preparation of financial
Board Structure can be of two types as statements and auditing functions.
follows: Made up of at least 3 independent non-
1. Unitary Board (UK & Ireland) executive directors, one of whom should
2. Two Tire/Supervisory (USA) have recent and relevant financial
experience

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Organisation for Economic Co-operation and Development (OECD) released its

Principles of Corporate Governance

Objectives: Protect the interest of Shareholders by

1. Promote transparent and efficient providing them:
markets 1. Equitable Rights
2. Be consistent with the rule of law; and [Link] redressal if their rights are
[Link] the division of violated
responsibilities between various 3. Protection from insider trading
supervisory, regulatory and enforcement 4. Obtain relevant and material
authorities. information from the entity

OECD Principle

The framework should ensure the

Framework should ensure timely and
strategic guidance of the company,
accurate disclosure of all material matters
effective monitoring of management by
regarding the entity, including financial
the board, and the board's accountability
performance, ownership and governance.
to the company and the shareholders.

UK Corporate Governance Code :

It applies to listed companies
It follows the concept of comply or explain
18 Principles covering leadership, stakeholder relations, board effectiveness, accountability,
audit risk, internal control and remuneration
Leadership:
The chair should be independent on appointment:
• not an employee (last 5 years);
• no material business relationship (last 3 years);
• not a significant shareholder.
➔ The board should include an appropriate combination of executive directors and
NEDs, so that no one individual or small group of individuals dominates the board’s
decision-making.
➔ There should be a clear division of responsibilities between the chair and the
executive leadership of the company’s business.
➔ NEDs should:
• have sufficient time to meet their board responsibilities;
• provide constructive challenge, strategic guidance, offer specialist advice and hold
management to account.
➔ The board, supported by the company secretary, should ensure that it has the policies,
processes, information, time and resources it needs in order to function effectively and
efficiently.
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➔ There should be a formal, rigorous and transparent procedure for board appointments
and an effective succession plan for board and senior management.
• A majority of members of a nomination committee should be independent NEDs.
• All directors should be subject to annual re-election.
• The chair should not remain in the post for more than nine years.
➔ An annual evaluation of the board should consider its composition, diversity and how
effectively members work together to achieve objectives.
➔ A formal and transparent procedure for developing policy on the remuneration of
directors and senior management remuneration should be established (principally
through a remuneration committee).
Objectives of audit committee:
➔ To increase public confidence in the credibility and objectivity of published financial
information
➔ To assist directors in meeting their financial reporting responsibility
➔ To strengthen the independent position of a company's external auditor
Audit Committee Composition:
➔ The committee should have at least three members – only two for smaller companies,
all must be independent NEDs
➔ Should comprise of independent. & non-executive directors.
➔ At least 1 member should have relevant financial experience / knowledge
Roles of Audit Committee
➔ Review of published financial statement/information
➔ Systems and control (monitor internal control and internal audit)
➔ Fraud prevention and detection (includes whistleblowing arrangement)
➔ Assist the External Auditor. The audit committee should be involved at all
stages of the audit, to obtain assurance that a quality audit will be performed.
➔ To review "whistle-blowing" policy of the company
➔ If the audit committee recommends new external auditors, then they should
oversee the selection process
Note:
Candidates are expected to understand the implications of the principles of corporate
governance and role of the audit committee sufficient to include relevant points in their
answers. For example, recognising that shortcomings in the execution of an audit
committee’s responsibilities with regards to internal audit is an audit risk.
The FRC Guidance Audit Quality – Practice aid for audit committees is examinable as an
example of best practice and practical issues in respect of audit committees.

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Chapter 2
Money Laundering
Money Laundering:
➔ It is a process by which criminals attempt to conceal the true ownership of proceeds
generated by illegal means and allowing them to maintain control over the proceeds
and ultimately providing a legitimate cover for this source of income.
➔ Three stages of money laundering are placement, layering and integration
➔ Suspicious Activity Report : In UK it must be made irrespective of the value or the
seriousness of the offence. However, countries may apply a “threshold approach”

Tipping off- to carry out any action that may make suspected money launderers aware that
they are under investigation, or prejudicing the outcome of an investigation.
The FATF Recommendations set an international anti-money laundering (AML) standard,
which countries should implement through measures adapted to their particular
circumstances.
Duties of Auditor:
➔ Risk Assessment: A written risk assessment must be carried out to identify and assess
the risk of money laundering
➔ Internal Control: Identify the controls for the assessed risk and evaluate the
effectiveness of those controls to manage and mitigate money laundering.
➔ Enhanced record keeping: It is very important that accountants keep comprehensive
records to show that they have complied with money laundering regulations, and
protect themselves if there is an investigation into one of their clients.
➔ Examples of potentially suspicious transactions include:
• unusually large cash deposits;
• frequent exchange of cash into other currencies;
• a transaction where the counter-party to the transaction is unknown;
• any activity inconsistent with the normal business activity;
• any activity involving off-shore business arrangements where there is no clear
business purpose underlying such arrangements.

➔ Professional accountants are legally required to report knowledge or suspicions of

money laundering to the appropriate authority (e.g. MLRO, police or customs
officer). It is a criminal offence not to do so.

➔ Reporting procedures:
1) Appoint a money laundering reporting officer (MLRO), failure to appoint a Money
Laundering Reporting Officer (MLRO) is an offence in the UK
2) Prepare internal report to elaborate on the suspicious, fill in the observations in a
standard form to report suspicions to MLRO
3) On receipt of the internal report, the MLRO must consider all of the circumstances
surrounding the suspicious of money laundering activities, document this process and
decide whether to report the suspicious to the appropriate external authority
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4) Audit firm has a legal duty to report even though this may conflict with the auditor’s
duty of confidentiality
➔ Accounting firms (and others) may have other reporting duties to fulfil, after reporting
suspicion to the appropriate authority, to which different reporting standards may
apply. Example: TCWG, Regulatory authority, implication on auditor’s report
➔ Records of transactions must be kept in a readily retrievable form for a period of at
least five years following the completion of the last transaction (or series of
transactions) or the end of the business relationship with that client.
➔ Customer Due Diligence , also referred to as Know Your Customer (KYC), ensures
that professional accountants:
• knows who their clients are;
• do not accept clients unknowingly which are outside the firm's risk tolerance or whose
business is not understood with sufficient clarity to be able to form money laundering
suspicions when appropriate.
➔ Enhanced due diligence: For higher risk clients, enhanced due diligence must be
carried out. Enhanced due diligence procedures include examining the background
and purpose of the transaction and increased monitoring of the business relationship.

➔ A business is not obliged to continue to act for a client where it:

• does not believe that it is in its commercial interests to do so; or
• would be incompatible with professional or ethical requirements.
• In resigning, care must be taken to avoid tipping off. Again, legal advice should be
sought if in doubt.
➔
Penalties:
On conviction, offences may be punishable by:
• imprisonment (e.g. minimum terms from six months); or
• fines (may be unlimited); or
• both.
All partners in a practice (and directors in a firm) are potentially liable on a joint and several
basis for breaches of the firm's obligations.

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Chapter 3
Code of Ethics and Conduct
Fundamental Principles of Accountants:
• Integrity- Members should be straightforward and honest in all professional &
business relationships
• Objectivity- Members should not be bias, conflict of interest or undue influence of
others to override professional or business judgements
• Professional Competence& due care- Members should act diligently and in
accordance with applicable technical & professional standard while providing
professional services
• Confidentiality- Members should respect confidentiality of information and should
not disclose any such information to third parties without proper and specific
authority or unless there is a legal or professional right or duty to disclose
• Professional behaviour- Comply with relevant law and regulations and avoid any
action that discredits to the profession
Threats to fundamental principles:

•Own shares in Client's •Preparation of •Long associations with

Self Interest Threat

Self Review Threat

company Financial Statement Familiarity Threat clients

•Fee dependency •Providing accounting •Personal relationships
•Receiving gifts and services •Movement of staff
hospitality •Internal audit services between firm and
•Taking/Issuing loans to •Tax computation client's company
client outside normal •Valuation services •Receiving gifts and
course of business •Client staff joins the hospitality
•Business and Personal audit firm
Relationship •Temporary Personnel
•Employement with Assignment
client •Management
•Serving as a Director Responsibility
•Overdue of fees •Litigation/Legal
•Litigation with the Services
client
•Contingent fees (even
for non-assurance
services)
•Recruiting Services
•Corporate Financing

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Advocacy Threat
Intimidation Threat

•Fee dependency •Representing the client

•Personal Relationship •Promoting the client
•Audit Partner joining the client's •Negotiating on behalf of the client
company
•Litigation with the client

Rules:
Public Interest Entity (PIE) Non-Public Interest Entity (Non-PIE)
Fee Dependency: total fees from a PIE Fee Dependency: total fees from a Non-PIE
client represent more than 15% of the firm’s client represent more than 30% of the firm’s
total fees for two consecutive years total fees for five consecutive years
If valuation might create a self-review If valuation involves a significant degree of
threat, service cannot be provided. subjectivity and will have a material effect,
service cannot be provided.
Tax Calculation, tax advisory and tax Tax Calculation, tax advisory and tax
planning service is prohibited if it is planning service can be provided by apply
material and creates self-review threat appropriate level of safeguard
Internal audit services that relate to the Internal audit service may be performed by
following are prohibited: professionals who are not audit team
• internal controls over financial members.
reporting;
• financial accounting systems that
generate information for the client's
accounting records or financial
statements; or
• amounts or disclosures that relate to
the financial statements.
A firm cannot provide services that involve No such rule applies for Non-PIE
designing or implementing IT systems
which are a part of internal control and used
to record financial statements
A key audit partner joining the client will No such rule applies for Non-PIE
compromise the audit firm’s independence
unless he was not concerned with the audit
of financial statements for a period of not
less than 12 months.
In some jurisdictions (e.g. under the
Sarbanes-Oxley Act), auditors are
specifically barred from providing Non-

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Assurance Service to listed company

clients.
An individual cannot act as an engagement For other entities, the factors to take into
partner, quality reviewer and key audit account when assessing the threat include:
partner role for more than 7 cumulative • how long the individual has been a
years. member of the audit team;
Cooling off period: • the extent to which their work is
• five years – engagement partner; directed, supervised and reviewed;
• three years – engagement quality • their closeness to senior
reviewer; management/TCWG and the nature,
• two years – other key audit partners. frequency and extent of interaction
with them;
• whether the client's management
team has changed; and
• whether the nature or complexity of
the client's accounting and reporting
issues has changed.

Serving as Company Secretary for an audit client is similarly prohibited unless:

• specifically permitted under local law, professional rules or practice;
• management makes all relevant decisions; and
• duties and activities are limited to routine and administrative

Evaluating the threats:

• The nature, scope, intended use and purpose of the service.
• The legal and regulatory environment in which the service is provided.
• Whether the client is a public interest entity.
• The firm's level of expertise with respect to the type of service provided.
• The extent of the firm's involvement in determining significant matters of judgement.
• Whether the outcome will affect the accounting records or matters reflected in the
financial statements, and, if so:
o Whether it is material;
o The degree of subjectivity involved.
• The nature and extent of any impact on the systems that generate information that
forms a significant part of the client’s:
o Accounting records or financial statements;
o Internal controls over financial reporting.
• The degree of reliance that will be placed on the outcome of the service in the audit.
• The fee for the NAS.

Common Safeguards:
• Obtaining partial payment of overdue fees.
• Having an independent reviewer who did not take part in the audit engagement review
the audit work.
• Informing senior management of the firm or TCWG of the client
• Amending or terminating the business relationship with the client

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• If the litigation involves an audit team member, remove that individual from the audit
team.
• Dispose off shareholding or resign from the audit firm
• Many firms require all professional employees not to hold any interest in any audit
client. Where an immediate family holds an interest, the employee should not be
assigned to that audit
• Many firms prohibit their partners (and the firm) from having any material loan from
financial institution clients.
• Where a loan is material to an employee, that employee would not be assigned to the
audit of the financial institution concerned.
• Using professionals who are not members of the audit team to perform the service.
• In an exam question, work through all of the issues and approaches and only after
exhausting all possibilities, consider seeking advice from the ACCA and the
possibility of resigning.
Consequence:
In case of Con-compliance with professional code of ethics:
1. Exclusion from membership/removal from student or affiliate register
2. Fine

Conflict of Interest:
• Where any commission, referral fee or reward may be earned for the
introduction of a client, or as a result of advice given to a client, a
Professional self-interest threat arises.
Accountant vs Client • The acceptance by a professional accountant in public practice of an
agency for the supply of services or products may present a conflict
of interest.
• Any conflict of interests exists or is likely to arise in the future with
both new and existing clients.
• A material conflict of interests between existing or potential clients
should be sufficiently disclosed so that they may make an informed
Client vs Client
decision whether to engage or continue their relationship with the
firm.
• Separate engagement teams are provided with clear policies and
procedures on maintaining confidentiality

Opinion Shopping: Asking for a second opinion occurs when an entity asks a professional
accountant who is not its auditor for an opinion on the application of accounting, auditing,
reporting or other standards or principles.
Providing a second opinion to an entity that is not an existing client may give rise to threats to
compliance with the fundamental principles, unless the advice sought is clearly insignificant.
Note: One Question on ethics will always be evaluated in the examination, the approach to
the question should be to
1. Identify the type of threat
2. Evaluate the threats (explain the threat based on the scenario given in the question)
3. Suggest safeguards: Either by eliminating the threat or reducing it to an acceptable
level
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Chapter 4
Professional Responsibility and Liability
ISA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of Financial
Statements
The objectives of the auditor are:
• To identify and assess the risks of material misstatement due to fraud;
• To obtain sufficient appropriate audit evidence in response to the assessed risks;
• To respond appropriately to fraud or suspected fraud identified during the audit.

Fraud is intentional. Three

factors which result in fraud:
It is primary responsibility of 1. Incentive/ Pressure
management to ensure that the 2. Opportunity
financial statements are free
from fraud and error. 3. Attitude

Fraud and Error

Auditor only ensure that fraud Error is unintentional mistake
and error which are material in
nature are detected and
reported in Financial
Statements Irregularity are non-
compliances and control
deficiencies

Indications of fraudulent transaction:

Discrepancies in the Accounting Records
• Improperly recorded transactions.
• Unsupported or unauthorised balances or transactions.
• Last-minute adjustments that significantly affect financial results.
• Tips or complaints to the auditor about alleged fraud.
• Evidence of employees' access to systems and records inconsistent with their
authorised duties.

Conflicting or Missing Evidence

• Missing or unavailable documents.
• Documents that appear to have been altered.
• No original documents when expected to exist.
• Significant unexplained items on reconciliations.
• Inconsistent, vague or implausible management responses.
• Unusual or unexplained discrepancies of any kind.
• Missing inventory or physical assets of significant magnitude.
• Final analytical procedures inconsistent with expectations.
• No evidence of program change testing and implementation.

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Declining Auditor-Client Relationship

• Denial of access to records, employees, customers, vendors, etc.
• Undue time pressures imposed.
• Intimidation of engagement team members.
• Unreasonable delays in providing requested information.
• Unwilling to change disclosures in the financial statements.
• Unwilling to address identified weaknesses in internal controls.

Responses to the risk of material misstatement due to fraud include:

• considering the overall audit approach;
• the nature, timing and extent of substantive audit procedures; and
• specific audit procedures to consider the risk of management override of controls.
• Increase professional scepticism, level and detail of supervision, attentiveness to
management's application of accounting policies, particularly those related to
subjective measurements and complex transactions.

Earning Management: Using the loopholes in financial reporting standards to inflate/deflate

revenue&expenses .If done delibrately it becomes a fraud, examples:
• Falsification of underlying accounting records
• Intentionally breaching an accounting standard
• Knowlingly omitting transactions or required disclosure in financial statement.

Communication of identified fraud:

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An auditor will withdraw from an engagement only in exceptional circumstances:

• Management does not take the necessary remedial action regarding fraud.
• Results of audit tests indicate a significant risk of material and pervasive fraud.
• There are significant doubts about the competence or integrity of management (or
TCWG).

ISA 250 Consideration of Laws and Regulations in an Audit of Financial

Statements provides extensive guidance.
Management’s Responsibilities are:
➔ Monitoring legal requirments
➔ Maintaining adequate Internal Control
➔ Developing and following a code of conduct
➔ Compliance with laws and regulations
Auditor’s Responsibility is: obtaining resonable assurance that the financial statement taken
as a whole one free from material misstatement by compling with all laws and regulations.
Indication of Non-compliance:
• Investigation by government departments or payment of fines or penalties.
• Payments for unspecified services or loans to consultants, related parties, employees
or government employees.
• Sales commissions or agent's fees that appear excessive.
• Purchasing at prices significantly above or below market price.
• Unusual payments in cash or transfers to numbered bank accounts.
• Unusual transactions with companies registered in tax havens.
• Payments for goods or services made other than to the country from which the goods
or services originated.
• Payments without proper exchange control documentation.
• Existence of an accounting system which fails, whether by design or by accident, to
provide an adequate audit trail or sufficient evidence.
• Unauthorised or improperly recorded transactions.
• Adverse media comment.

Audit Procedures:
➔ Obtaining general understanding of the entity and the applicable laws and regulations
➔ Enquiry to identify Non Compliance
➔ Enquiry with the Managaement & Those Charged with Goverenace (TCWG)
➔ Inspecting Correspondence with relevant licensing or regulatory authority
➔ Remaining alert for non-compliances
➔ Obtaining written representation from management
➔ If any non-compliance is identified then:
• Document findings supported by relevant evidence.
• Discuss with management and include relevant representations in the representation
letter.
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• Consult with entity's lawyer (and/or a legal expert, as necessary).

• Reassess risk in other audit areas that might be affected by the non-compliance. For
example, if a breach of hygiene standards in a restaurant resulted in legal claims the
risk of overstatement of out-of-date inventory may be higher than initially assessed.

Auditor’s action when non-compliance is identified:

➔ Evaluate the impact in terms of fines, penalties, damages, litigation etc
➔ Report the matter to management and TCWG
➔ Report to any third party like regulatory authority if applicable
➔ Consider resignation
Auditor’s liability in case of non-fulfilment of responsibilities:
Legal Liability can arise out of negligence i.e., loss is suffered as a result of the breach of
duty of care. The two types of liabilities are:

Civil Liability: Sued for negligence or breach of duty

• 3rd party suffered loss as a result of relying on a negligently prepared anditor’s report
• Under insolvency legislation to creditors- auditor must be careful not to be implicated in causing
losses to creditors alongside directors
• Tax fraud
• Under financial service legislation and/or rules
• Under stock exchange legislation

Criminal Liability: Either knowingly or recklessly issued an appropriate audit opnion

• Acting as auditor when ineligible

• Fraud, theft,bribery & other form of corruption
• Insider dealing
• Knowingly/reclessely making false statements in connections with issue of security

Audit Firms may take the following steps to minimise their exposure to negligence
claims:
➔ Restrict the use of auditor’s report and assurance report to their specific intended
purpose
➔ Engagement letter to include a clause to limit liability to third party
➔ Screening potential audit clients to accept only clients where the risk can be managed
➔ Take specialised legal advice where appropriate
➔ Respective responsibilities and duties of directors and auditors communicated in the
engagement letter and auditors report to minimise misunderstanding
➔ Insurance professional indemnity insurance
➔ Carry out high quality audit work
➔ Take on LLP status
➔ Set a liability cap with clients

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Chapter-5
Quality Control
Quality is a key part of ensuring that audits are fit for purpose and retain the public trust.
High quality of audit is maintained by following all standards, maintaining professional
scepticism and focusing on providing an error free audit report.
To Assess the quality of audit the following should be considered:
➔ Have all International Standards of Auditings been followed?
➔ Has the work been allocated to the appropriate level of staff?
➔ Has the audit been time pressured?
➔ Has the appropriate audit evidence been obtained?
➔ Has the audit been performed in accordance with the audit plan?
➔ Has the audit been properly supervised?
➔ Has the audit work been properly reviewed?
Internation Standard on Quality Management ( ISQM 1):
➔ Applies to all firms that perform audits or reviews of financial statements or other
assurance or related services engagements.
➔ ISQM 1 embeds this approach through a principle driven requirement for firms to
create a system of quality management (SoQM) which is tailored to the firm and its
client base.
SoQM comprises of eight components:
1. Risk Assessment process: Design and implement a risk assessment process that sets
quality objectives and identifies risks which is tailormade according to the client.

2. Goverance and leadership: Create an environment which demonstrates a commitment

to quality through its culture and recognises its role in serving the public interest.

3. Relevant ethical requirement: Include objectives and policies for ensuring the
fulfilment of ethical requirements based on the jurisdiction and the size of the firm.

4. Acceptance and continuance of client relationships: Assess the integrity and ethical
values of the client and its management, as well as the firm’s ability to perform the
engagement within legal and professional requirements not just during first time
assignment but every year when audit is taken up.

5. Engagement Performance: Engagement teams must understand their responsibilities

for ensuring a quality audit. Less experienced engagement team members should be
appropriately supervised and reviewed.

6. Resources: Ensure that appropriate resources are available in a timely manner.

7. Information and Communication: Obtaining, generating and using information and

communicating the information within the firm, for example, communicating policies
to personnel, communication of information obtained during an audit with an
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engagement quality reviewer, or communication between group and component

auditors.

8. Monitoring and remediation process: Process for monitoring the SoQM’s

effectiveness and ensure deficiencies are identified in a timely manner, allowing
corrective actions to be implemented.

Exam Advice:
• Candidates may be required to explain and/or evaluate a firm’s risk assessment
process and make recommendations for improvement.
• Candidates may be required to explain the importance of governance and leadership
in maintaining the SoQM or to evaluate a scenario’s weaknesses in this area,
alongside recommendations for improvement.
• Candidates may be asked to appraise ethical threats arising in the given scenario,
whilst also considering whether the firm is compliant with its SoQM.
• Candidates may have to discuss the importance of acceptance and continuation
assessments or to apply the requirements of ISQM 1 when evaluating whether to
accept a new client, undertake additional work for an existing client or accept
reappointment for a continuing client.
• Candidates may have to evaluate scenarios in which inappropriate resources have
been employed within an audit and make recommendations for improvements to the
firm’s SoQM.
• Candidates may have to explain how the monitoring and remediation component
contributes to continual improvement of a firm’s SoQM.

Response to Address Quality Risks:

➔ Firm must implement polices and procedures to ensure:
• There is no threat to ethical requirment
• There is a mechanism to receive, investigate and resolve complaints and
allegations about failures to perform work in accordance with professional
standards and legal and regulatory requirements or non-compliance with the
firm’s policies or procedures for quality management;
• communication with TCWG when performing an audit of financial statements
of listed entities about how the SoQM supports the consistent performance of
quality audit engagements
➔ Engagement Quality Reviewer (EQR):
An EQR is defined by the IAASB as an ‘objective evaluation of significant judgements made
by the engagement team and the conclusions reached thereon, performed by the engagement
quality reviewer (the reviewer) and completed on or before the date of the engagement report'

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Examples of engagement where EQR is appointed:

• Audits which involve a high level of complexity or judgement due to significant accounting
judgements with high degrees of uncertainty
• Audits where significant issues have been encountered, such as a material restatement of
comparatives.
• Audits or engagement for which unusual circumstances have been identified during acceptance and
continuance procedures, such as a disagreement with the previous auditor.
• Engagements involving reporting to be included in regulatory findings which may contain a high
degree of judgement, such as a listing prospectus.
• Audits and engagements for which the firm has no prior experience.
• The use of an EQR to mitigate ethical threats identified.

Eligibility of EQR

• An EQR cannot be a member of the audit engagement team so that they remain objective and
independent of the audit.
• They should have an understanding and experience of similar engagements and understand the
responsibilities in performing and documenting an EQR.
• Reviewers must have appropriate authority within the firm to allow them to challenge the audit
engagement partner.
• The reviewer must comply with relevant ethical requirements and the provisions of laws and
regulations relevant to the jurisdiction in which they are operating.
• The reviewer may be a member of the audit firm or external to the firm.

Responsibilities of EQR

• Review and understand the significant judgements made by the engagement team. They will assess
whether the audit engagement documentation supports those judgements and whether the
conclusions reached are appropriate.
• Evaluate the engagement partner’s determination that independence requirements have been
fulfilled.
• Evaluate whether appropriate consultation has taken place on difficult or contentious matters.
• Evaluate whether the engagement partner has sufficient and appropriate involvement on the audit
engagement to be able to assess the judgements and conclusions reached by the engagement team.

There are two types of engagement reviews:

Particulars HOT COLD
Purpose Enhance quality of assurance work To identify any deficiencies in the firm’s
processes
When Before issue of audit report After issue of audit report
Kind of audit • Listed Clients All engagements
• Public intrest engagement
• Special assignments

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By Whom Independent partner of sutiable Dedicated quality/compliance department

experience & authority
Outcome A reduction in audit risk i.e ensuring • Identify corrective actions
audit opinion is not expressed • Communication of findings
appropriately • Additional Quality control review
• Changes to firm’s policies and
procedures
• Disciplinary action

ISA 220: Quality Management for an Audit of Financial Statement: Focuses on factors
which has to be taken care by audit engagement partner to ensure high quality of audit:
➔ Ensuring sufficient and appropriate resources are available to the engagement team in
a timely manner and in line with the firms’ policies and procedures. The partner is
also responsible for ensuring the engagement team and any external expert and
internal auditors providing direct assistance to the team have appropriate competence
to perform their assigned roles.
➔ Audit is planned and performed in accordance with the firm’s policies and
procedures, professional standards and applicable legal and regulatory requirements,
and also that changes can be made to the resources available to the team where
circumstances change.
➔ Ensure an engagement quality reviewer is appointed where necessary and that the
engagement team cooperate with the reviewer, including ensuring all significant
matters and judgements arising with respect to the audit are discussed with the
reviewer.

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Chapter 6
Practice Management
Reason for Changing Auditor:
➔ Reduced audit fee
➔ Company policy of rotation
➔ Disputes over FR matters
➔ Appointment of new group auditors
➔ Audit firm ceased trading
➔ Dissatisfied with auditors work
➔ Firm has stopped offering audit service
➔ Size of firm
Tendering: is the process of quoting a fee for work before the work is carried out.
The content of the proposal should include:
➔ The fee and how it has been calculated
➔ Proposed audit partner and key members of the audit team
➔ Capacity of the audit partner to commit sufficient time to the audit
➔ Relevant experience of the industry and type of company e.g., experience of auditing
a listed company
➔ Ability of the firm to bring insight, add value, and show understanding of the
company’s values, strategies and objectives
➔ The proposed approach to the audit or audit methodology including the firm’s use of
technology and innovation such as data analytics
➔ The firm’s audit quality track record and demonstration to the commitment to quality
➔ Ability of the firm to maintain independence, challenge management on judgemental
areas and bring an alternative viewpoint
➔ The nature, purpose and legal requirements of an audit (particularly useful if this is
the first time the entity is being audited)
➔ An assessment of the requirements of the client
➔ An outline of how the audit firm proposes to satisfy those requirements and the
assumptions made, e.g., on geographical coverage, deadlines, work done by client,
availability of information, etc.
➔ The ability of the firm to offer other services.
Advertising rules for ACCA Members:
The aim of adverts should be ‘to inform, rather than impress’.
The rules state that advertisements and promotional material should not:
➔ Bring the ACCA into disrepute or bring discredit to the member, firm or the
accountancy profession.
➔ Discredit the services offered by others whether by claiming superiority for the
member’s own services or otherwise.
➔ Be misleading, either directly or by implication.

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➔ Fall short of the requirements of any relevant national Advertising Standards

Authority’s Code of Advertising Practice, notably as to legality, decency, clarity,
honesty, and truthfulness.

Rules for determining the fees for an assignment:

Members are entitled to charge a fair and reasonable fee for their services. This amount will
be:
➔ The fee considered appropriate for the work undertaken
➔ The fee in accordance with the basis agreed with the client
➔ The fee by reference to custom in certain specialised areas.

Members will usually consider the following matters in setting a fee:

➔ Seniority of the persons necessarily engaged on the work
➔ Time spent by each person
➔ Degree of risk and responsibility that the work entails
➔ Urgency of the work to the client
➔ Importance of the work to the client
➔ Overhead expenses of the firm.
The ACCA’s position is that fees should not be charged on a percentage, contingency or
similar basis, except where that course of action is generally accepted practice e.g.,
insolvency work.
Contingency fees could lead to practitioners forcing a specific outcome that would not
normally have been obtained to try and achieve higher fees. For example, tax fees may be
agreed based upon the tax savings the practitioners create or an auditor may be paid for
unusually rapid completion of an audit. This could lead to the engagement being conducted
without necessary due care and objectivity.
Lowballing is the setting of a low price at the start of an arrangement in order to secure the
business, with the intention of later raising it or recovering the losses made on that
engagement with other, more lucrative, services. This could result in a self-interest threat as
the auditor may try and keep their client happy in order to win other contracts with them.

Client Screening: During this process the auditor evalutes the below factors before accepting
the work:
• Ethical and indepedence factors
• Timing of the audit;
• Availability of sufficient staff at appropriate grades to meet deadlines;
• Number and location of premises;
• Specialist industry knowledge required; and
• Professional independence rules.

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Matters to be considered before accepting an engagement:

Professional Clearance:
1. Ask the client for permission to contact the
Precondition of audit : existing auditor (and refuse the engagement if
1. Agreeing the terms of the engagement the client refuses).
2. Compliance with code of ethics 2. Contact the outgoing firm, asking for all
information relevant to the decision whether or
3. Management understands and acknowledges not to accept appointment (e.g. overdue fees,
its responsibility: disagreements with management, breaches of
a) Preparation of the FS according to applicable laws & regulations). This is also referred to as a
financial reporting framework professional etiquette letter.
b) Internal control necessary for FS to give true 3. If a reply is not received, the prospective
& view firm may accept but must proceed with care.
c) Providiy the auditor with access to all 4. If a reply is received, consider the outgoing
relevant information & explanations. firm's response and assess if there are any
ethical or professional reasons why they should
not accept appointment.

Resources:
Objectivity: The firm should consider whether there are
If the assurance provider is aware, prior to adequate resources available at the time the
accepting an engagement, that the threats to engagement is likely to take place to perform
objectivity cannot be managed to an acceptable the work properly. If there is insufficient time to
level, the engagement should not be accepted. conduct the work with the resources available,
the quality of the work could be affected.

Money laundering: (client due diligence)

The firm must comply with Money Laundering
Regulations which require client due diligence
to be carried out. If there is any suspicion of
money laundering, or actual money laundering
committed by the prospective client, the firm
cannot accept the engagement.

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Risks:
Management integrity : Any risks identified with the prospective
client (e.g. poor performance, poor
If the firm has reason to believe the client controls, unusual transactions) should be
lacks integrity there is a greater risk of considered. These risks can increase the
fraud and intimidation. level of engagement risk, i.e. the risk of
issuing an inappropriate report.

Fees: Competence:
The fee should be commensurate with the An engagement should only be accepted if
level of risk. In addition, the the firm has the necessary skill and
creditworthiness of the prospective client experience to perform the work
should be considered as non-payment of competently.
fees can create a self-interest threat.

Reputation of the client:

The firm should consider the reputation of
the client and whether its own reputation
could be damaged by association.

Content of Engagement Letter:

➔ The objective and scope of the audit of financial statements
➔ Responsibilities of auditor
➔ Responsibilities of Managament
➔ Identification of applicable financial reporting framework for the preparation of
financial statements
➔ Reference to the expected form and content of the report to be issued
➔ Basis of fees
The content of the engagement letter should be agreed with the client before any engagement
related work commences. The client's acknowledgement of the terms of the letter should be
formally documented in the form of a director's signature.
Note: Question can be asked on the below topics:
1. Matters to be included in the tender proposal
2. Matters to consider before accepting an engagement/deciding whether to take part in
the tender process
3. Matters to include in the engagement letter.

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Chapter 7
Planning, materiality and assessing the risk of misstatement
Audit Startegy: Determines the scope of the audit engagement, for example:
➔ The financial reporting framework used;
➔ Industry-specific law and regulation requirements;
➔ Governance requirements;
➔ Locations of the components of the entity (may have different requirements).
➔ The determination of appropriate materiality levels;
➔ The identification of higher risks of material misstatement;
➔ The identification of material components and account balances;
➔ The identification of recent, industry, financial reporting or other relevant
developments affecting the entity. The auditor must understand how management will
meet any new or revised disclosure requirements.

Planning for an audit has the following steps:

• Gain understanding through last year's audit report,

Understanding minutes of board meeting, press release, website etc
the entity and • Perform enquiry with Management
its enviornment
• Understand the sector and all applicable compliances

• Perform enquiries, analytical procedures, observations and

Risk Assessment inspection to understand the risk
procedure • Determing business risk and audit risk
• Perform control testing to understand the frequency of risk

Determine • What audit procedures are to be carried out?

nature, timing • Who should perform them?
and extend of • How much work should be done?
audit procedures
• When the work should be completed?

Materiality: If any transaction/amount/ ledger is stated wrongly and it will affect the users of
the financial statement then it is said to be material.
Risk of material misstatement: Risk that the financial statement contain material
mistatement.
Mistatement: Any error or fraud.

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• PBT- 5-10%
Material by • Revenue- ½-1%
Amount • Total Asset- 1-2%

o Compliance
o Related Party transactions
o Debt covenants
Material by Nature o Misstatements that turn profits into losses
o Future legal claims
o Going concern issue

Performance Materiality: Performance materiality is set on a level lower than materiality so

that no misstatement is left uncorrected and undetected

• External Factors:
• Changing legislation / interest rates
• Price wars initiated by competitors
• Untried Technology & ideas
Business Risk: • Political factors
Those risk that prevent a • Natural hazard
business from achieving its • Internal Factors:
strategic objective • Cashflow difficulties
• Increasing gearing
• Faud/Overtrading
• Failure to modernise products etc

• Inherent risk: Risk inbuild in the business

because of complexity, uncertainity,
subjectivity etc
Audit Risk: • Control risk: Risk that entities controls will
not prevent, detect or correct any misstatement
Risk that the auditor issues an • Detection risk: Auditor is unable to detect any
inappropriate audit opinion material misstatement through the audit
procedures performed

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Analytical Procedures at Planning Stage: Analytical procedures help identify

inconsistencies, unusual transactions or events, and amounts, ratios and trends that indicate
matters that may have audit implications. The identification of unusual or unexpected
relationships may assist in identifying risks of material misstatement, especially due to fraud.
Significant Risk: The impact or probability of any error/fraud is high. Indicators of
significant risk:
➔ If Fraud is involved
➔ Involves related party
➔ Related to recent economic changes
➔ Changes in accouting policies/framework
➔ Transaction is outside the normal course of business
Additional audit procedures have to be performed for significant risk.
Points to be considered incase of first time audit:
➔ Communication with previous auditors
➔ Understanding accounting policies followed
➔ Opening balance check with signed previous year signed financials
➔ Additional time and resource required
➔ Increase substantive testing
Expectations and Performance Measures
➔ Through understanding the entity and analytical procedures, expectations are
established about plausible relationships that are reasonably expected to exist.
➔ When such expectations do not then occur, the audit plan must be reviewed to
determine the reasons why and if there is an increase in the risks of material
misstatement.
➔ Performance measures may be internal or external (e.g. meeting budgets, cash flows,
reported profit forecasts, share price targets). Professional scepticism must apply
when, for example, the auditor is aware of potential pressures on management to meet
expected performance measures.

Transnational audit : an audit of financial statements which is, or may be, relied on outside
the audited entity's home jurisdiction for purposes of significant lending, investment or
regulatory decisions; this will include all companies with listed equity or debt and other
public interest entities which attract particular public attention because of their size, products
or services provided.

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Note: Generally section A has one 50 mark question from risk

1. If Analytical procedures are asked: perform trend/ratio analysis. Only calculate ratios
and trends relevant to evaluating audit risks or risks of material misstatement. Marks
will only be awarded where the calculations are used within the risk evaluation. Each
calculation will be awarded 0.5marks
2. Each risk will be worth 2-3marks. To earn the full marks for each risk you need to
properly explain the risk. If your answers are too brief or do not demonstrate
sufficient understanding you will not score the marks. To ensure your answer is
sufficiently detailed, use the following approach:
➢ Identify the information from the scenario that creates the potential risk.
➢ If numbers are provided, calculate whether the balance is material. This helps
to assess whether the risk is significant. Each materiality calculation gains
0.5marks
➢ State the required accounting treatment from the relevant accounting
standard. If the case study provides specific information about the accounting
treatment, comment on this in your answer.
➢ State the risk to the financial statements if the required treatment is not
followed, i.e., which balances will be under or overstated.
3. How to gain Professional Scepticism marks: Highlighing the below issue while
performing risk assessment will be useful:
➢ Monitoring going concern indicators
➢ Review of related party transactions, if all of them are accounted and at arm’s length
value
➢ Designing audit procedures to find any evidence that would contradict management
assertions (e.g. on fair values, impairment of goodwill, etc);
➢ Revising the assessment of risks of material misstatement and modifying the audit
approach as new or contradictory audit evidence becomes available.

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Chapter 7
Evidence and Testing
Risk,Procedures and evidence:
➔ Audit procedures are designed to obtain evidence in response to the assessment of risk
at the planning stage.
➔ Evidence gathered must be sufficient and appropriate to reduce assessed risk to an
acceptable level.
➔ If, at the review stage, the senior audit staff deem that the risk of misstatement has not
been reduced to an acceptable level, more evidence will be required.
Audit Procedures:

Audit
Procedures

Based on the results of Analytical Procedure is

control testing performed at performed at planning,
planning stage other execution and completion
procedures are designed stage

Additional procedures: 1. Analysis of plausible

Substantive Testing includes
Test of details, obtaining 1. Verification of opening relationship
external confirmations, balances 2. Comparisions
physical verification, 2. Estimates and fair value 3. Ratios/ Trend analysis
inspection, enquires and 3. Evaluating the work of
observations 4. Investigation of unusual
other fluctuations
4. Related party transactions

Verification of Opening balances and comperative information:

➔ Performed in first year of audit when previous year was audited by other auditor/
unaudited.
➔ If information not avalible then qualified or disclaimer opinion is isssued.
➔ If opening balance are material misstated then qualified or adverse opinion is issued.
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Estimates and Fair Value:

➔ Inherently risky
➔ Subject to management bias
➔ Need for professional scepticism
➔ Test management’s process for making the estimate
➔ Obtain Management Representation letter.
Related Parties:
➔ Material by nature
➔ Increased audit risk
➔ Ensure the disclosure is appropriate:
1. Nature of related party relationship
2. Details of transactions and outstanding balance at the year end
3. Any allowance or expense recognised in respect of bad debts
➔ Look for undisclosed related party transactions
➔ Ensure that related party transaction are at arm’s length.
Computer-assisted audit techniques (CAATs) – techniques that use the computer as an
audit tool in the application of auditing procedures.
CAAT can be used in two ways:
➔ Audit Software: Computer programs used to interrogate a client's computer files are
mainly used for substantive testing. They include: Package programs (generalised
audit software); Purpose-written programs and Enquiry programs.
➔ Test Data: The main objective of submitting data for processing by the client's
computer system is to test the operation of automated application controls:
• "Dummy data" includes many error conditions.
• Error-free data is included to ensure correct transactions are processed properly.
• Testing can be "live" (i.e. during a normal processing run) or "dead" (using copies of
master files).
Audit Application of Automated Audit Techniques:
➔ Analytical procedures: Preliminary analysis of all transactions during a set period:
o Provides additional insight into the nature of business activities;
o Can identify trends and anomalies that may indicate potential risk areas and
concerns that require specific audit focus.
➔ Controls testing: Examination of 100% of transactions to determine whether:
o Each transaction appears to comply with a specific control rule;
o There is an indication of activities occurring for which no control has been
implemented.
➔ “Three-way matching”: For example:
o purchase orders, goods received notes and invoices; or
o sales invoices, shipping documents and master price list.
➔ “Can do did do testing”: To test segregation of duties and whether any inappropriate
combinations of users have been involved in processing transactions.

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➔ Substantive procedures: Analysis of transactions (or a statistical sample) to determine

whether they are complete, valid and accurate.
➔ Fraud detection: Analysis of transactions to identify fraud indicators.
➔ General analysis and communication: The application of analytics to identify
anomalies in business processes or transactions and communicating recommendations
to management.

FS Assertions:

Transaction and Account

Events: Balances:
CCCAPO CEAVOPC

Completeness Completeness

Classification Existence

Cut-off Accuracy

Accuracy Valuation

Presentation Obligation and

Right

Occurance Presentation

Classification

Audit Sampling Selection

Selection methods suitable for statistical methods include:
• Random number selection
• Systematic (also called "interval") selection
• Value-weighted selection
• Monetary unit sampling
Other selection methods that may be appropriate in the circumstances but which are not valid
for statistical sampling include:
• Haphazard selection
• Block sampling.

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Evidence

Appropriate: refers to the

quality of evidence
Sufficient: refers to the obtained.
quatity of evidence obtained
Evidence should be relavant
and reliable

Audit documentation ("working papers") – the record of audit procedures performed,

relevant audit evidence obtained, and conclusions the auditor reached.
Matters which are important in providing evidence must be documented to:
➔ support the audit opinion;
➔ demonstrate that the audit was performed in accordance with ISAs;
➔ assist in the planning and performance of the audit (e.g. in providing information);
➔ facilitate the supervision and review of audit work (e.g. in giving instructions to
assistants); and
➔ record the audit evidence generated by the audit procedures that are undertaken to
support the audit opinion.

Written representation: Written representations are written statements by management:

• to confirm management’s responsibilities; and
• to support other audit evidence.
Although written representations provide necessary audit evidence, they do not provide
sufficient appropriate audit evidence on their own about any of the matters with which they
deal.
Merely writing "obtain written representation" in the examination is never sufficient to be
awarded any credit. Answer points must be specific in stating what the representation is
required to be about and why it is needed.

Note:
1. Audit procedures and evidence are asked in the examination for 10-15 marks. Procedure
are the action of verifying a ledger whereas evidence are the outcome of procedure, the
documents verified to ensure correct accounting is done are evidence.
2. Mention audit assertions for all the procedures.
3. Identify the type of procedure i.e analytical procedure, inspection etc.
4. Identify the requirements of the relevant accounting standard and design procedures to
confirm the criteria have been met.
5. Identify the source of evidence available.

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Chapter 8
Audit Procedures and Obtaining Evidence
Property, Plant and Equipment:
Audit Risk Audit Procedures Audit Evidence
Capital expenditure might Completeness - Capitalisation policy document.
be understated by being - Review the entity’s capitalisation policy. - Sample invoices.
incorrectly expensed as - Test a sample of repairs and maintenance - Fixed asset register vs GL
revenue expenditure. expenses to identify any capital items reconciliation.
wrongly expensed.
- Reconcile general ledger to fixed asset
register.
Cost of self-constructed or Accuracy (initial cost) - Payroll records.
leased assets might not - Inspect breakdown of self-constructed - Borrowing agreements & interest
include all directly assets for segregation of direct costs and computations.
attributable costs or may overheads. - Lease agreements and lease
include inappropriate - Verify borrowing costs capitalised under payment schedules.
items. IAS 23 with interest rates and loan
agreements.
- Check lease liability calculations for ROU
assets under IFRS 16.
Misclassification between Classification - Invoices and work orders.
capital and revenue - Review large repairs and maintenance - Engineering/maintenance reports.
expenditure (e.g., repairs invoices to determine whether the
treated as asset expenditure enhances the asset.
improvements). - Inspect supporting documents for nature of
work done.
PPE may be overstated if Valuation (Carrying amount) - Fixed asset register with
depreciation or impairment -Recalculate depreciation for a sample of depreciation calculations.
is not correctly applied. assets based on useful life, residual value, - External valuation report.
and depreciation method. - Budgets and forecasts.
- Assess for indicators of impairment under
IAS 36; if present, verify impairment
testing.
- Review valuation reports if assets
revalued.
PPE may be recorded Rights and obligations - Title deeds / lease contracts.
when the entity has no - Inspect lease agreements to ensure control - Legal ownership or lease
rights, especially in the over the asset exists under IFRS 16. documentation.
case of leased assets. - Confirm ownership via title deeds,
purchase agreements, or lease contracts.
Assets may have been Existence - Physical inspection records.
disposed of or scrapped - Physically inspect a sample of assets from - Asset disposal forms.
but still recorded. the asset register. - Fixed asset movement schedule.
- Trace to serial numbers and location tags.
- Review disposal documentation.
Incorrect presentation or Presentation & Disclosure - Financial statements and notes.
incomplete disclosures of - Review financial statements for correct - Disclosure checklist.
classification of ROU assets and assets held
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revaluations, leased assets, for sale under IFRS 5. - Board minutes for held-for-sale
or assets held for sale. - Check revaluation surplus is correctly assets.
shown in OCI.
- Ensure all disclosure requirements under
IAS 16, IFRS 5, and IFRS 16 are met.
PPE transactions recorded Occurrence (for additions/disposals) - Purchase and sale invoices.
may not relate to the entity - Vouch additions and disposals to invoices, - Contracts.
or occurred in the contracts, and board approvals. - Board minutes.
reporting period. - Review cutoff testing at year-end.

Intangible Assets:
Audit Risk Audit Procedures Audit Evidence
Intangible assets identified in a business Completeness : check whether all -Contract for determining
acquisition must be verified, as this intangible assets from acquisitions ownership
directly affects goodwill are recorded. -Specialist valuations
Accounting treatment of events or Occurrence : Verify if (quotas, patents, trademarks).
transactions that affect the carrying events/transactions affecting -Management
amount of intangibles. Consider, in carrying amounts occurred. representations, corporate
particular, any evidence of impairment of plans, etc, that confirm the
assets in the development phase as a economic life.
result of technical or market changes -Market research studies,
Internally generated assets cannot be Accuracy: correspondence with
recognised unless their cost can be -Evaluate management's potential customers, advance
measured reliably. assumptions used in valuation orders.
models for intangible assets (e.g., -Invoices and time sheets for
discount rates, market conditions). "own work" capitalised.
-Review impairment testing for
intangibles with indefinite useful
lives and assess whether indicators
of impairment have been properly
considered.
Estimate of finite useful life – this is Existence:
especially difficult for intangible assets -Review the client’s capitalisation
and may need to be included in a letter of policy and test whether internally
representation. generated costs meet the
Intangibles carried at an indefinite life of recognition criteria under IAS 38.
intangible asset require an annual -Inspect title docs or physical
impairment review. presence (e.g. prototypes).
-Inspect documentation such as
Documents of title and similar (patent patents and licenses to verify the
registration, trademark registration) legal ownership of assets.
should be available for many intangibles.
Physical inspection of the results of
development work (e.g. prototypes) may
confirm existence but only evidence
of future economic benefits confirms that
costs are appropriately carried as assets.
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Goodwill:
Audit Risk Audit Procedures
Correct adjustment to the initial Assess fair value measurement Acquisition agreements, valuation
calculation of goodwill where events in of consideration, including models of contingent consideration.
the first year after the date of acquisition deferred or contingent
revise the estimates of fair values of elements, and the net assets
assets and liabilities acquired acquired under IFRS 3.
Fair value measurement of non-cash, Verify that goodwill is Cash-generating unit structure and
deferred and contingent consideration correctly allocated to CGUs forecasts of recoverable amount.
and the acquired assets and liabilities; and evaluate the
Recognition and measurement of appropriateness of impairment
intangible assets not previously tests conducted by
recognised management.
Inappropriate use of present values and
expected values in calculating the fair
value of the deferred consideration;
Incorrect measurement of the non-
controlling interest at acquisition
Appropriate allocation of goodwill to a Review board minutes and Board resolutions approving
cash generating unit (CGU), not acquisition agreements to acquisitions and post-acquisition
necessarily related to the component confirm the acquisition date integration plans.
acquired. and terms.
Correct application of CGU impairment
tests.

Investment Property:
Audit Risk Procedure Evidence
Rental income and gains/losses from fair Accuracy: Review classification Valuation reports by
value remeasurement of property assets to confirm independent valuers.
whether IAS 40 or IAS 16 should
apply.
Management may be reluctant to recognise a Valuation: Evaluate fair value Rental agreements and
fall in fair values (or impairment if the cost measurements against bank statements showing
model is used). This risk is relevant to all non- independent valuer reports or rent receipts.
current assets. recent market transactions.
Subsequent expenditure can only be added to Existence: Inspect leases or rental Legal documents
initial cost if it enhances the asset's value (i.e. agreements for completeness of transferring property
increases the economic benefits) income recognition. ownership.
There is a risk of overstatement through Presentation: Verify disclosures Financial statements
inappropriate fair valuation (e.g. using for changes in fair value and footnotes and board
development potential rather than existing transfers between categories. minutes.
use) or inadequate write down in the event of
impairment.
Where the asset's use is changed (e.g. from
investment to owner-occupied or
commencement of development with a view
to sale)
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Investments:
Audit Risk Procedure Evidence
Dividend income and related enhancements Accuracy: Recalculate Broker contract notes,
(rights, bonuses, etc). dividend/interest income and verify trade confirmations.
against dividend/interest statements.
Acquisition (transaction) expenses should Existence: Agree investment Stock exchange prices at
be included as part of the cost of holdings to broker confirmations or reporting date.
acquisition when first recognised. share certificates.
Disclosure have detailed and extensive Presentation: Review disclosures Investment certificates or
requirements – a checklist is likely to be for classification and measurement custodian confirmations.
used. basis under IFRS 9.
Accounting under IFRS 9 for fair values of Valuation: Reperform fair value Dividend announcements
investments at the year end. calculation using observable market from financial
Use of fair value models for unlisted data where available. publications.
investments.

Inventory:
Audit Risk Procedure Evidence
Double counting – especially where items Accuracy and Existence: Attend Inventory sheets and count
of inventory are physically moving during physical inventory count and records signed by auditor.
the physical count. perform test counts.
Omission (e.g. when items are in transit
between locations). For inventory held by third party Letter of confirmation
Inventories held by third parties and thrid perform physical count if possible, or from third part warehouse.
part inventory held at client’s premises else obtain third party confirmation
pose risk of misstatement. for the inventory held.
Errors can give rise to misstatements in Valuation: Test cost calculations Costing reports and
reported revenue, profit, trade receivables and review application of standard purchase invoices.
and payables as well as inventory. cost or weighted average.
Inventory should be carried at the lower of Valuation: Inspect post-year-end Subsequent sales invoices,
cost and net realisable value (NRV). sales to verify NRV for slow-moving ageing analysis.
NRV must be applied on an item-by-item or obsolete stock.
basis and usually requires estimates of
selling price, costs to sell and rectification
costs. Events after the reporting period may
provide evidence of these amounts.

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Biological Asset:
Audit Risk Procedure Evidence
All animals and plants that are created by Accuracy and Existence: Attend - Copy of physical count
natural processes must be recognised. physical inventory count and of assets and inspect
Assets will be understated if procreated perform test counts. premises/conditions in
assets are not recorded which they live.
Asset records showing additions - Copy of Purchase/Sales
(purchases/births) and disposals Invoices
(sales/deaths) and agree balances to
physical counts. Agree samples of
purchases and sales to purchase/sale
invoices and cash payments/receipts.
Initial recognition is at fair value less costs Valuation: Copy of document stating
to sell. As a practical expedient, when fair -Analytical procedures for the fair values of price in
value cannot be measured reliably on initial Estimatating number of assets based an active market. If there
recognition (e.g. seedlings planted on historical birth/death rates and is not an active market,
immediately before the reporting date), compare with actual numbers. agree to most recent
cost may be used as an approximation. -Compare direct costs associated transaction prices
with the assets (e.g.
feeding/inoculating livestock) with
prior years.
-Verify document stating the fair
values of price in an active market. If
there is not an active market, agree to
most recent transaction prices

Unique categories of income related to

biological assets are:
• gain or loss on initial recognition
(e.g. gain when an animal is born);
• changes in fair value less costs to
sell from period to period.

Assets will be overstated if they do not

exist due to death.
Biological assets are measured at each
reporting date at fair value less costs to
sell.
Once valued at fair value, cost cannot be
used.

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Contruction Contract:
Audit Risk Procedure Evidence
Misclassification of plant, Existence: - Asset registers, plant hire
equipment, or inventory as - Inspect the classification of construction- contracts.
contract assets related balances and trace them to source - Stock records.
documents to confirm they relate to actual - Reconciliations between
contract activity, not PPE or inventory. project cost accounts and
- Review the plant register and inventory asset listings.
records for signs of double counting.
Expected losses not accounted Completeness: -Contract schedules
for, especially in long-term loss- -Evaluate whether the entity has identified any showing costs to date and
making contracts onerous or loss-making contracts and reviewed forecast costs.
the provision made under IFRS 15. - Loss provision
- Inquire with project managers and review calculations.
actual vs. budgeted costs. - Budget reports, board
minutes.
Revenue not disaggregated Presentation: - Financial statements and
appropriately or contract - Review financial statements to ensure revenue notes.
balances not presented or is disaggregated appropriately. - Contracts register.
disclosed correctly - Check disclosures of contract assets/liabilities - Board discussions on
and significant judgments made by revenue categories.
management. - Management’s disclosure
- Review disclosures for consistency with IFRS workings.
15.
Impairment losses on receivables Accuracy and Valuation: - Receivables aging reports.
or contract assets not recognized - Review for any overdue receivables or - Customer correspondence.
underperforming contracts. - External legal/technical
- Evaluate estimates for impairment, especially reports.
where cash collection is delayed. - Budget vs. actual cost
- Examine if provisions for remedial work or schedules.
delays have been incorporated.
Incorrect progress measurement Accuracy and Valuation: - Progress certificates.
(e.g., overstated percentage -Recalculate stage of completion using cost-to- - Engineer or surveyor
completion) cost method or physical progress. reports.
- Inquire about the method used and - Updated cost to complete
consistency with prior periods. schedules.
- Inspect site reports and independent expert - Reconciliations from prior
assessments. year.
Understatement of obligations Rights and Obligations: - Customer communication.
for future remedial or -Discuss with technical staff any known quality - Provisions ledger.
rectification works or completion issues. - Site defect reports.
- Inspect correspondence with customers for - Legal/legal claim
complaints or expected defects. documentation.
- Review provision for warranty or remedial
costs.

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Receivables:
Audit Risk Procedure Evidence
Receivables may not relate Occurrence :Select a sample of trade receivables Sales invoices, signed
to genuine sales and trace them to underlying sales invoices, dispatch delivery notes, contracts,
transactions, especially notes, and contracts to confirm that the receivables external confirmation
where aggressive revenue are valid. Confirm customer balances using external responses from customers.
recognition is used. confirmations.
Foreign currency Accuracy: Review the calculation of year-end Exchange rate tables,
denominated receivables translations and confirm exchange rates used against recalculated foreign
may be inaccurately published sources (e.g., central bank or government currency balances,
recorded if incorrect websites). published exchange rates
exchange rates are used. from official sources.
Receivables may be Accuracy and Valuation: Review aged receivables Aged receivables listing,
overstated if specific or report and evaluate adequacy of provision for historical loss rate, customer
expected credit losses are impairment by assessing reasonableness of correspondence, credit risk
not properly accounted for. assumptions and history of recoveries. assessments, provision
schedules.
Receivables may be Existence and Accuracy: Send direct confirmation External confirmations,
overstated if fictitious requests to customers for outstanding balances. subsequent cash receipts,
balances are recorded or Where confirmations are not received, perform correspondence with
due to fraudulent practices alternative procedures such as checking subsequent customers, bank statements.
such as teeming and receipts.
lading.
Receivables may be Presentation: Review financial statements for Disclosure checklist,
misclassified or completeness of disclosures regarding receivables financial statements, board
inadequately disclosed in including aging, impairment policies and related minutes, management
the financial statements. party balances. representation letter.

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Cash and bank balance:

Audit Risk Procedure Evidence
Some bank overdrafts or Completeness: -Bank confirmation letters
liabilities might be omitted -Obtain bank confirmations for all accounts that -Year-end bank statements
from the financial existed during the year, including overdraft and loan -General ledger account
statements, especially if facilities. balances
the entity is not reconciling - Compare the confirmed balances to the general -List of facilities and
all bank accounts or ledger to identify unrecorded overdrafts. reconciliations
facilities properly.
Bank balances may be Presentation: - Bank letters confirming
inappropriately offset -Review financial statement disclosures to verify right of set-off (if any)
against overdrafts, whether offsetting of bank balances and overdrafts - Board authorisations and
especially in consolidated complies with IFRS. internal policies
financial statements, - Confirm whether the bank has legally granted a - Financial statement
without a legal right of set- right of set-off. disclosures and notes
off, leading to
mispresentation.
Foreign currency bank Accuracy and Valuation: - Foreign currency bank
balances may be misstated -Recalculate the value of foreign currency balances statements
if incorrect exchange rates using official year-end exchange rates (e.g., central -Official exchange rate
are used for year-end bank rates). tables
translation. - Ensure that balances are reported using closing rate -Recalculation schedules
per IAS 21.

Entity may not fully own Rights and Obligations: -Bank confirmation letters
the cash or may have Review bank confirmations, loan agreements, and -Registered charge
restricted access due to board minutes for any charges over cash balances, documents
charges or set-off liens, or set-off arrangements. -Loan agreements and board
arrangements with the resolutions
bank.
Cash balances, especially Existence: -Cash count sheets signed
physical cash at remote -Conduct a year-end surprise cash count at all by auditor
locations, may be fictitious locations with petty cash. -Petty cash vouchers and
or misstated due to lack of - Review petty cash vouchers and reconciliations. imprest system records
physical verification. -Cash reconciliation
statements

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Lease Obligation:
Audit Risk Procedure Evidence
Some lease obligations Completeness: - Lease register and lease
may be omitted, especially - Review the lease register and ensure all leases agreements.
where management above the low-value threshold or longer than 12 - Board minutes approving
incorrectly applies the low- months are recognised. lease terms.
value or short-term - Inspect lease contracts for any omissions and cross- - Fixed asset schedules and
exemption. check with fixed asset and expense accounts for general ledger expense
undisclosed leases. accounts.
- Assess whether the exemptions have been applied - IFRS 16 exemption
only to eligible leases memos.
Lease liability may be Accuracy and Valuation: - Lease contracts and legal
misstated if lease term or Examine lease contracts to identify terms, options to correspondence.
discount rate is not extend, terminate, or purchase. - Management’s discount
correctly estimated (e.g. - Evaluate management’s judgment on the rate assumptions.
extension options or early “reasonable certainty” to exercise options. - Incremental borrowing
termination clauses). - If interest rate is not explicit, review how rate documentation.
incremental borrowing rate was estimated. - Lease calculation
- Reperform lease liability and right-of-use (ROU) spreadsheets.
asset calculations.
Lease modifications (e.g., Accuracy and Valuation: - Revised lease agreements.
rent concessions or term - Inquire with management and legal team about any - Management calculations
revisions) may not be mid-term lease modifications. for lease modifications.
reflected in remeasured - Check if lease payments or terms have changed, - Correspondence with
liabilities. and whether lease liabilities have been updated lessors.
accordingly.
- Recalculate revised lease obligations where
applicable.
Lease liabilities and related Presentation: - Financial statements and
ROU assets may be - Verify that lease liabilities, interest expense, notes.
incorrectly presented or depreciation, and ROU assets are correctly separated - Lease maturity analysis.
disclosed in the financial and disclosed. - IFRS disclosure checklist.
statements. - Ensure maturity analysis of lease liabilities is - Management’s summary
presented. of qualitative disclosures.
- Check for required disclosures relating to low-value
leases, short-term leases, and sale and leaseback
transactions.
- Use disclosure checklist to test compliance with
IFRS 16.

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Deferred taxes:
Audit Risk Procedure Evidence
Deferred tax liabilities may Completeness: - Deferred tax computation.
be understated if all - Review the deferred tax working paper and - Breakdown of temporary
taxable temporary reconcile temporary differences to the underlying differences.
differences are not financial statements. - Trial balance and financial
identified. - Inspect all balance sheet items for differences statements.
between carrying amounts and tax bases. - Audit working papers with
- Ensure taxable differences are captured and line-item reconciliations.
appropriately included.
Deferred tax liability may Accuracy: - Tax legislation or official
be incorrectly calculated if - Verify that tax rates used are substantively enacted
government updates.
measured using incorrect by the reporting date (check government tax - Deferred tax computation
or non-substantively legislation). schedules.
enacted tax rates. - Confirm deferred tax is not discounted. - Legislative confirmations
- Reperform the calculations using tax rules. for tax rate changes.
Deferred tax asset may be Accuracy, Valuation & Existence: - Business plans and future
overstated if not - Assess reasonableness of management's projections profit projections.
recoverable due to of future taxable profits. - Deferred tax asset
insufficient future taxable - Review business forecasts, budgets, and profit justification memo.
profits. trends. - Historical performance
- Discuss with tax specialists if tax planning and trend analysis.
strategies are used. - Correspondence with
internal/external tax experts.
Deferred tax asset or Accuracy and Valuation: - Movement reconciliation
liability may not reflect - Reconcile prior year temporary differences to the schedules.
updated changes from current year position. - Current and prior year tax
current year activity. - Review tax computation to ensure adjustments from computations.
current year transactions have been reflected. - General ledger and tax
- Test closing balances by recalculating movements. trial balance.

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Provisions:
Audit Risk Procedure Evidence
A provision may be Existence & Obligation: - Legal letters and
recorded without a present - Review supporting documentation and legal advice correspondence.
obligation, violating IAS to confirm whether a legal or constructive obligation - Minutes of board meetings
37. exists at the reporting date. authorising provisions.
- Evaluate if the event leading to the provision had - Signed agreements,
already occurred. contracts, or regulatory
notices.
Provisions for all Completeness: - Claims log and insurer
obligations may not be - Discuss with management and legal department to correspondence.
recognised, especially for identify potential obligations (e.g., product - Customer complaints or
constructive or one-off warranties, litigation). warranty claim history.
obligations. - Inspect claims registers, correspondence with - Subsequent events review
insurers, and review post year-end events for omitted and board minutes.
provisions.
Provisions may be Accuracy and Valuation: - Provision calculation
inaccurately measured if - Inspect provision workings and test the basis of sheets and estimation
the best estimate of estimation (expected value or most likely outcome). models.
outflow is not reliable. - For material provisions, test discounting calculation - Historical trend of claims
and rate used. (e.g., % of returns).
- Confirm assumptions used in warranty or legal - Discounting assumptions
claim provisions. and actuarial or expert
reports.
Provisions may be used Accuracy and Existence: - Provision continuity
inappropriately to smooth - Review the schedule of provisions showing schedules.
earnings across periods. opening, additions, usage, and reversals. - General ledger entries and
- Confirm provisions were used only for the original allocation reports.
purpose and reversed if no longer required. - Audit trail showing
- Analyse consistency with prior years. purpose and resolution of
the provision.
Presentation of provisions Presentation: - Financial statements and
and related disclosures - Review financial statements and note disclosures disclosure checklist.
may be inadequate. against IAS 37 requirements. - Management's accounting
- Ensure items like nature of obligation, expected papers.
timing, and uncertainty are included. - Supporting schedules and
reconciliations.

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Pension Obligation:
Audit Risk Procedure Evidence
Informal or supplementary Completeness and Occurence: - HR policy documents.
pension-related liabilities - Enquire with management whether the entity pays - Management
(e.g. death grants, or plans to pay benefits not covered under the formal representations.
healthcare) may not be plan. - Board minutes and
identified or disclosed. - Inspect board minutes and employee handbooks for employment contracts.
any informal commitments or historical practice.
Employee and employer Accuracy and Occurrence: - Payroll ledgers and
contributions may be - Recalculate a sample of employee and employer contribution schedules.
miscalculated, contributions based on payroll records. - Authorization for
unauthorised, or not paid - Confirm deductions and payments to the pension employee inclusion.
in accordance with the scheme are authorised, accurate, and timely. - Bank statements
plan. - Trace contributions to payroll and bank payments. confirming payments.
Defined benefit obligations Accuracy and Valuation: - Actuarial valuation
and plan assets may be - Obtain actuarial report and confirm assumptions reports.
misstated due to incorrect used (e.g., discount rate, salary growth, mortality - Market data for annuity
actuarial assumptions or rates) are reasonable. and discount rates.
errors in valuation. - Compare plan asset values to market values and - Fair value reports for plan
ensure fair value changes are accounted for. assets.
- Confirm annuity and discount rates align with - Assumption review
current market data. memos.
Unexplained changes or Accuracy: - Movement schedules for
gaps in pension balances - Reconcile current year pension obligation and plan defined benefit liability.
compared to prior periods asset values with prior year balances. - Prior year actuarial
may indicate error or - Investigate any large, unexplained variances or schedules and ledgers.
omission. inconsistencies in actuarial calculations. - General ledger
reconciliations.
Disclosures of pension Presentation: - Financial statements and
obligations may be - Review financial statement notes for compliance note disclosures.
incomplete, especially for with IAS 19, including disclosure of actuarial - IAS 19 disclosure
actuarial gains/losses and assumptions, risks, plan assets, and movements. checklist.
risks associated with the - Use a disclosure checklist to verify completeness. - Management’s summary
plan. workings of disclosures.

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Payables:
Audit Risk Procedure Evidence
Goods/services received Completeness and Cut-off: - GRNs and purchase
before year-end may not be -Review GRNs issued just before year-end and match invoices.
accrued if the invoice is them to purchase invoices received after year-end. - Accrual journals for
received post year-end. - Review the cut-off procedures around year-end and "goods received not
assess whether liabilities have been accrued invoiced".
appropriately. - Purchase ledger and year-
- Inspect unpaid invoice listings and match to goods end payables list.
received dates. - Expense ledgers and
supplier correspondences.
Foreign currency payables Accuracy and Valuation: - Foreign currency invoices.
may be misstated if not - Recalculate year-end balances for foreign currency - Exchange rate listings (e.g.
translated at the correct payables using official closing exchange rates. from central banks).
exchange rate. - Review the method of translation and compare with - Currency translation
previous years for consistency. workings.
Unrecorded liabilities may Obligation: - Supplier contracts and
arise if obligations under - Review contracts and supplier agreements to purchase orders.
terms of trade are determine whether liabilities existed at year-end. - Legal correspondence and
overlooked. - Inspect correspondence for ongoing disputes or confirmations.
delivery confirmations to assess the existence of - Payment schedules and
obligations. delivery terms.
Fictitious suppliers are rare Existence: - Supplier statements.
but could exist in case of - Verify balances through supplier statements and if - Purchase invoices and
fraud or collusion. needed, perform external confirmations with payment confirmations.
suppliers. - Bank statements and
- Match supplier balances to invoices and payments ledger reconciliations.
made.
Disclosures in the financial Presentation: - Financial statements and
statements might be - Review disclosures of trade and other payables to disclosure checklist.
incomplete or inaccurate. confirm classification (e.g., current vs non-current). - Accrual summary
- Ensure accrued expenses are separately disclosed if schedules.
material. - Supplier and contract
payment terms.

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Revenue:
Audit Risk Procedure Evidence
Revenue may be Completeness: - Sales ledger and inventory
understated due to - Perform analytical review procedures such as test- records.
suppression of sales, in-total estimation and compare to prior periods or - Dispatch notes (GDNs),
misappropriation of cash, budgets. sales invoices.
or avoidance of tax - Inspect the sales ledger and compare with dispatch - Analytical procedures
liabilities. logs (GDNs) to identify unrecorded transactions. (trend analysis, margins).
- Perform cut-off testing around year-end for missing - Bank statements and
revenue receipts.
Revenue may be overstated Occurence: - Sales invoices and
by recognising sales that - Select a sample of revenue entries and trace them to customer contracts.
did not occur (e.g., sales orders, GDNs, and customer confirmations. - GDNs and delivery
fictitious invoices). - Verify any large or unusual year-end entries with acknowledgments.
supporting documentation. - Customer confirmations
and correspondence.
Revenue may be recorded Cut-off: - Year-end cut-off
in the incorrect period if - Review GDNs and sales invoices raised before and schedules.
the performance obligation after year-end. - Pre- and post-year-end
has not been satisfied. - Ensure that revenue is recognised only when GDNs and invoices.
control passes - Terms of sale and shipping
documentation.
Revenue may be misstated Accuracy: - Customer contracts and
where the transaction price - Review contracts for variable consideration pricing terms.
includes variable elements (rebates, discounts, penalties). - Revenue recognition
or complex terms. - Evaluate management’s estimation of expected workings and assumptions.
consideration and time value of money, if material. - Discount logs and rebate
- Confirm accounting for non-cash consideration is agreements.
consistent with IFRS 15. - Time value adjustments if
applicable.
Revenue disclosures may Presentation: - Financial statements and
be inadequate, especially - Review financial statement disclosures for contract note disclosures.
for major contracts, balances, performance obligations, and - IFRS 15 disclosure
performance obligations, disaggregation of revenue. checklist.
or disaggregation. - Use IFRS 15 disclosure checklist to assess - Summary of contracts and
completeness. key terms.

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Segment Reporting:
Audit Risk Procedure Evidence
Management may Completeness: - CODM internal reporting
intentionally omit or - Identify the chief operating decision maker packs.
combine underperforming (CODM) and inspect internal reports submitted to - Board minutes and CEO
segments to hide poor them. dashboards.
results. - Review internal management reporting system for - List of operating segments
all segments analysed by the CODM. and assessment criteria.
- Assess whether all reportable segments have been
appropriately disclosed
Segment results may not Accuracy: -Management information
be prepared with the same - Evaluate controls over the internal reporting system system outputs.
level of rigour or accuracy used to generate segment data. - Segment allocation
as IFRS-based financial - Review how revenue, expenses, and assets are workings and control logs.
data. allocated between segments. - Control testing
- Ensure consistency between internal and external documentation on internal
segment disclosures. reporting system
Disclosures could be Presentation: - Segment summary reports
misleading if segments are - Confirm whether segments with similar economic and economic analysis.
not clearly explained or are characteristics are truly similar using profit margins, - Profitability comparisons
aggregated without risks, customers, and growth prospects. across segments.
meeting similarity criteria. - Check segment descriptions for clarity and ensure - Disclosure drafts and
underperforming segments are not hidden within narrative descriptions.
successful ones.
Changes in segments from Accuracy and Completeness: - Prior year and current year
prior year may be poorly - Compare current year segment reporting to prior segment disclosures.
explained or year disclosures and analyse for consistency. - Justification memos for
inappropriately justified. - Evaluate management’s justification for any new or segment changes.
discontinued segments. - Segment reconciliation
- Test that reconciliation to financial statement totals schedules.
(e.g. revenue, assets) is complete. - Disclosure checklist.

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Borrowing Cost:
Audit Risk Procedure Evidence
Incomplete capitalisation Completeness: - Bank statements and
of borrowing costs -Review all ongoing construction projects to identify interest schedules showing
Risk that not all interest qualifying assets. total interest incurred.
costs eligible for - Review interest expense accounts to ensure all - Capital project schedules
capitalisation have been relevant costs are captured. indicating qualifying assets.
capitalised
Overcapitalisation of Occurrence: - Project progress reports.
borrowing costs - Check the timing of capitalisation start and - Completion certificates or
Risk of capitalising cessation dates. management confirmation
borrowing costs beyond - Compare project milestones to determine of readiness for use/sale.
the point the asset is ready substantial completion.
for use or sale.
Incorrect application of Accuracy: - Loan agreements and bank
interest rate on general - Inspect loan agreements to determine the applicable contracts.
borrowings interest rate. - Recalculation worksheets
Risk that an inappropriate - Recalculate capitalised borrowing costs using the showing interest rate x
rate has been used, leading weighted average interest rate. qualifying expenditure.
to inaccurate capitalisation.
Inclusion of non-qualifying Accuracy: - Costing records for
expenditure in the - Review breakdown of capitalised costs to ensure construction or inventory
calculation they relate only to qualifying assets. projects.
Risk that expenditure - Asset capitalisation
unrelated to qualifying schedules and expenditure
assets is included. summaries.
Omission of arrangement Completeness and Accuracy: - Loan agreements showing
fees or other finance costs - Verify terms of borrowing in loan agreements for all fees and charges.
Risk that all borrowing additional costs. - General ledger entries for
costs, not just interest, are - Confirm treatment of these costs in the financial finance costs.
not considered. statements.

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Government Grant:
Audit Risk Procedure Evidence
Grant income recognised Occurrence: - Grant agreements and
before meeting conditions - Review the terms and conditions of the grant to related correspondence.
Risk that grant income is ensure recognition criteria are met. - Legal or expert advice
recognised prematurely. - Obtain management’s assessment of compliance confirming eligibility and
with grant conditions. compliance.
Grant incorrectly classified Valuation and Presentation: - Grant documentation
as income or asset-related - Review the nature of the grant and verify if it indicating purpose.
Risk of inappropriate relates to income or assets. - Financial statements with
presentation in the - Check consistency of classification with prior disclosures.
financial statements. periods and accounting policies.
Incorrect valuation of non- Accuracy: - Valuation reports or
monetary grants - Verify valuation basis for non-monetary grants appraisals.
Risk that such grants are (e.g., land or equipment). - Grant agreements and
not recognised at fair value - Engage valuation experts if necessary. supporting documentation.
or are incorrectly
measured.
Repayable grants not Valuation: - Letters from grantor
accounted for properly - Inquire of management and review correspondence indicating breach or
Risk that a change in for any indication that the grant has become clawback.
estimate (e.g., breach of repayable. - Management
conditions) is not - Inspect minutes of board meetings discussing correspondence and legal
recognised. compliance. advice.
Income not recognised Accuracy: - Schedules matching
systematically over the - Review the method of income recognition and test income recognition with
period of related costs alignment with related costs. related expenses.
Risk that grant income is - Review grant accounting policy for systematic basis - Financial statement
not matched with the of recognition. disclosures.
related expenditure.

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Discontinued Operations:
Audit Risk Procedure Evidence
Inadequate or incorrect Presentation:
- Financial statements with
disclosure of discontinued - Review financial statement disclosures for
note disclosures.
operations compliance with IFRS 5.
- Checklist comparing
Risk that the entity does - Compare disclosures against criteria (e.g., separate
disclosures to IFRS 5
not fully comply with major line of business or geographic area).
requirements.
disclosure requirements.
Omission of discontinued
Completeness: - Board meeting minutes.
operations that meet
- Review minutes of board/management meetings for - Formal disposal plans or
recognition criteria
plans to dispose of components. sale agreements.
Risk that a qualifying
- Inspect sales agreements or marketing materials for - Marketing documents or
component is not identified
disposal. broker correspondence.
or disclosed.
Misclassification of Presentation and Completeness: - Management schedules
continuing vs discontinued - Inspect management’s analysis of component separating performance.
operations performance. - Segment reports and trial
Risk that the financial - Review internal reporting for segregation of balances.
results of the discontinued discontinued operations.
component are not
properly separated.
Component does not meet
the definition of Presentation: - Documentation of the
discontinued operation - Assess if the component is a separate major line of coordinated disposal plan.
Risk that an item is business/geography or qualifies under a coordinated - Acquisition agreements for
incorrectly treated as plan. resale-only subsidiaries.
discontinued.
Disposal group not - Evidence of marketing
actively marketed Presentation and Completeness: efforts (e.g., brochures,
Risk that classification as - Confirm the entity is actively marketing the listing agreements).
held for sale is premature component for sale at a reasonable price. - Sale negotiation
or inappropriate. correspondence.

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Impairment Loss:
Audit Risk Procedure Evidence
Impairment indicators not Completeness: - Minutes of
identified or ignored - Inquire of management regarding any events or directors’/management
Risk that triggering events changes indicating impairment (e.g., decline in meetings.
are not considered and market value, adverse changes in technology or - External reports, industry
impairment losses are regulations). news, and regulatory
omitted. - Review board minutes and external market updates.
information for evidence of triggering events. - Impairment review
schedules.
Inaccurate measurement of Accuracy: - Forecasts and budgets used
recoverable amount - Review and assess management’s methodology for in value in use calculations.
Risk that the recoverable calculating value in use, including reasonableness of - Discount rate derivation
amount (higher of fair cash flow forecasts and discount rate. and assumptions.
value less costs of disposal - Reperform the impairment calculation and compare - Formal impairment
and value in use) is not with management’s. calculation schedule.
appropriately calculated.
Use of unrealistic cash Accuracy: - Past budgets vs. actual
flow projections - Assess historical accuracy of management’s results.
Risk that future cash flows forecasts. - Management’s forecasts
are overstated, inflating - Compare current forecasts to prior years’ actual and assumptions for future
value in use. performance. periods.
Incorrect accounting Valuation: - Revaluation schedules.
treatment of impairment -Review financial statements and disclosures to - Supporting documentation
reversals confirm the reversal is correctly presented. for reversal justification.
Risk that a reversal is not - Evaluate whether the indicators for reversal are
correctly treated as a valid and supported.
revaluation increase.
Impairment loss not Presentation: - Financial statement notes.
properly disclosed in the - Review note disclosures to ensure compliance with - IAS 36 disclosure
financial statements IAS 36. checklist.
Risk of insufficient or - Use disclosure checklist to verify all relevant - Board approval of
incorrect disclosure of information is included. impairment conclusions.
impairment losses and
assumptions.

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Accounting Policies, Changes in Accounting Estimates and Errors:

Audit Risk Procedure Evidence
Inappropriate change in Classification: - Board meeting minutes.
accounting policy not in - Review board minutes and accounting policies to - Revised accounting policy
line with IAS 8 confirm the rationale for the change. notes.
Risk that changes in policy - Confirm that the change is permitted by an IFRS - References to IFRS
are used to manipulate standard or results in more relevant/reliable requiring or permitting the
profit or not allowed under information. change.
IFRS.
Incorrect retrospective Accuracy and Classification: - Schedules showing prior
application of a change in - Review calculations for retrospective restatement year adjustments.
accounting policy and check for consistency with IAS 8. - Reconciliation of retained
Risk of misstated - Recalculate the effect of the change on prior period earnings.
comparatives or retained balances. - Statement of changes in
earnings. equity.
Prior period errors not Accuracy: - Documentation of the
corrected appropriately - Obtain details of the identified error and evaluate original error.
Risk that material errors whether it arose from the misuse or omission of - Calculations of the prior
are not properly identified reliable information. and current year impact.
or corrected - Confirm that retrospective restatement is applied, - Disclosure of restatement
retrospectively. unless impracticable. in the notes.
Misclassification of Classification: - Supporting documentation
changes in accounting - Review the nature of the change and verify whether differentiating estimate vs
estimate as policy changes it is a change in estimate or policy. policy change.
Risk that prospective-only - Confirm prospective treatment for estimate changes - Forecasting assumptions
changes are incorrectly per IAS 8. used for estimate changes.
restated.
Incomplete or incorrect Presentation: - IAS 8 disclosure checklist.
disclosure of changes and - Use a disclosure checklist to verify that all required - Financial statement
errors in financial disclosures are made. disclosures.
statements - Review the statement of changes in equity and - Statement of changes in
Risk of non-compliance related notes. equity entries.
with IAS 8 disclosure
requirements.

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Events after reporting period:

Audit Risk Procedure Evidence
Material events not Completeness: - Minutes of
identified or disclosed - Inquire of management whether any events have board/management
Risk that management fails occurred between the reporting date and the date of meetings after the reporting
to disclose significant non- auditor’s report. date.
adjusting events due to - Review board minutes and legal correspondence for - Legal letters or
bias or oversight. significant post-year-end developments. correspondence.
- Examine post-year-end transactions (e.g., major - Post-year-end financial
sales, lawsuits, impairments, etc.). records (e.g., cash receipts,
sales, contract terminations).
Material non-adjusting Presentation: - Draft financial statements
events not properly - Review financial statement disclosures for and accompanying notes.
presented or disclosed in completeness and accuracy in accordance with IAS - IAS 10 disclosure
financial statements 10. checklist.
Risk that disclosures in the - Confirm disclosures clearly describe the nature and - Communication from
notes to the accounts are estimated financial effect of non-adjusting events. management regarding
incomplete or missing. - Use a disclosure checklist to ensure compliance classification of the event.
with IAS 10.
Adjusting events not Completeness/Accuracy: - Subsequent documentation
recognised when necessary - Evaluate whether post-year-end events relate to validating or invalidating
Risk that events that conditions that existed at the reporting date. year-end assumptions.
provide evidence of - Reassess estimates made at year-end in light of - Updated asset valuations
conditions existing at year- post-balance sheet events. or impairment evidence.
end are not recognised in - Legal confirmations.
the accounts.

Earning per Share:

Audit Risk Procedure Evidence
EPS calculation may be Accuracy: - EPS calculation schedules.
inaccurate - Recalculate basic and diluted EPS using - Earnings figures from
Risk that errors in calculating underlying earnings and number of shares. audited profit or loss.
basic or diluted EPS lead to - Assess consistency of calculation with IAS 33. - Documentation of number
misleading financial - Discuss any methodology changes with of shares in issue and
statements. management. potential shares.
Share transactions may not be Occurrence: - Statutory returns (e.g.,
complete or properly reflected - Review statutory filings and shareholder Companies House filings).
Risk that changes in share resolutions for changes in share capital. - Board minutes authorising
capital (e.g., bonus issues, - Trace bonus/rights issues and convertible share issues or conversions.
rights issues, conversions) are instruments to board minutes. - Shareholder registers.
omitted or misstated.
Failure to disclose diluted Presentation: - Draft financial statement
EPS or misleading EPS - Review disclosures for both basic and diluted disclosures.
presentation EPS to ensure IAS 33 compliance. - Disclosure checklist for
Risk that entities intentionally - Confirm no alternative EPS is given greater IAS 33 compliance.
omit diluted EPS or present prominence than the statutory EPS. - Communications or
alternative performance - Check that diluted EPS is presented unless internal papers explaining
measures to mislead users. demonstrably immaterial. omission of diluted EPS (if
applicable).
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Acquisition of Subsidiary, Associate, or Joint Venture:

Audit Risk Procedure Evidence
Incorrect date of Occurrence: - Share purchase agreement.
acquisition may result in - Review acquisition agreement and legal documents - Board minutes approving
misstated profits to determine the exact date control or significant acquisition.
Risk of recognising pre- influence was obtained. - Consolidation schedules
acquisition gains/losses in - Verify transactions included in the consolidated showing split between pre-
the consolidated profit or results relate only to the post-acquisition period. and post-acquisition results.
loss.
Misclassification between Classification: - Joint venture/operation
joint operation and joint - Review the contractual agreement and legal form of agreement.
venture the arrangement. - Legal opinions (if
Risk of using the incorrect - Assess rights to assets and obligations for liabilities applicable).
accounting treatment (e.g., to classify as joint operation or joint venture per - Assessment memo
proportionate IFRS 11. comparing agreement terms
consolidation instead of with IFRS 11 criteria.
equity method).
Omission of subsidiaries Completeness: - Group structure chart.
that should be consolidated - Verify that all entities under control are included in - List of acquisitions during
Risk that entities acquired the group consolidation. the year.
are improperly excluded - Confirm that any exclusions are justified (e.g., held - Documentation justifying
from group accounts. for sale or investment entity per IFRS 5/10). any exclusions from
consolidation.
Inaccurate fair valuation of Accuracy: - Fair value working papers.
net assets acquired - Review valuation reports for reasonableness and - Independent expert
Risk of misstating compliance with IFRS 3. valuation reports.
goodwill and post- - Check calculations for acquisition-date fair values, - Acquisition journal entries
acquisition figures due to goodwill, and any contingent consideration. and fair value adjustments.
incorrect fair value of - Confirm accounting for intangible assets and
assets/liabilities. contingent liabilities.
Incomplete or incorrect Presentation and Disclosure: - Draft financial statement
disclosures relating to - Review disclosures in line with IFRS 3 notes.
acquisitions requirements (e.g., name of acquiree, date, % - Completed IFRS 3
Risk of non-compliance acquired, goodwill, etc.). disclosure checklist.
with IFRS 3 and other - Use a disclosure checklist to verify completeness. - Supporting schedules for
relevant standards. disclosed amounts.

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Cashflow Statements:
Audit Risk Procedure Evidence
Understatement of cash Completeness: - Statement of cash flows
flows due to net - Review whether gross presentation has been applied cross-referenced to trial
presentation for all relevant cash flows, especially in operating balance and working papers.
Risk that inflows and activities. - Consolidation cash flow
outflows are incorrectly - Examine whether intra-group cash flows have been schedules (for groups).
reported on a net basis, properly eliminated in group cash flow statements. - Bank statements and
leading to incomplete - Compare cash flows to movement in cash and cash reconciliations.
disclosures. equivalents in the SOFP.
Incorrect classification of Classification: Cash flow schedules with
cash flows between - Verify that classification of transactions (e.g., classification tags.
operating, investing, and interest paid/received, acquisition of assets, - General ledger and
financing activities dividends) is consistent with IAS 7. transaction listings.
May distort understanding - Assess whether non-cash items have been excluded - Supporting documentation
of the company’s financial appropriately. for significant items (e.g.
position. loan agreements, acquisition
contracts).
Inaccurate cash from Accuracy and Valuation: - Working capital schedules
operations due to errors in - Recalculate adjustments for working capital (reconciliation between
working capital movements. P&L and cash movement).
adjustments - Review consistency of cash flow from operations - Reconciliation between
Risk that adjustments for with audited financial statements. opening and closing SOFP
changes in receivables, - If the direct method is used, trace major cash flows cash and cash equivalents.
inventory, and payables are directly to accounting records. - Supporting working papers
incorrectly calculated. for receivables, payables,
inventory.
Foreign currency Accuracy: - Entity’s foreign currency
translation errors in cash - Review schedules for foreign currency cash flows cash flow schedules.
flows and verify exchange rates used are appropriate. - Spot exchange rates used
Exchange rate effects may - Confirm exchange gains/losses are correctly at date of cash flow.
not be accurately reflected presented under IAS 7. - FX gain/loss reconciliation
in cash movement. statements.
Lack of explanation for Presentation: - Management discussion
changes in cash flow - Discuss with management any changes in method notes.
reporting method of presenting operating cash flows. - Operating cash flow
Inconsistent reporting - Review reconciliation between current year and reconciliation.
where entity switches from comparatives. - Financial statements’ note
indirect to direct method or - Confirm rationale is disclosed in the notes to the disclosures.
vice versa. accounts.

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Contingent Assets and Liabilities:

Audit Risk Procedure Evidence
Incomplete disclosure of Completeness: - Board minutes.
contingent liabilities - Inquire of management regarding any known or - Correspondence with
Risk that significant potential legal/constructive obligations. lawyers.
contingent liabilities are - Review minutes of board meetings for references to - Management
not disclosed due to legal matters. representations.
management judgment or - Examine legal expense accounts for patterns or new - Letter of inquiry to
oversight. matters. lawyers confirming details
- Seek direct confirmation from external legal of ongoing litigation and
counsel. management's assessment.
Misstatement of Presentation: - Legal advice or reports.
classification between - Assess whether the matter meets the recognition - Management’s
provisions and contingent criteria for a provision under IAS 37 (present classification
liabilities obligation, probable outflow, and reliable estimate). documentation.
Could lead to incorrect - Challenge management’s judgment regarding the - Correspondence detailing
presentation in financial likelihood of outflow and materiality of the amounts. nature of obligation and
statements. probability of settlement.
Failure to recognise or Completeness and Presentation (Assets): Details of legal or
disclose contingent assets - Discuss with management any claims, legal actions, contractual claims filed.
that are virtually certain or events that could give rise to inflows. - Internal correspondence
May understate the entity’s - Determine whether inflows are virtually certain and legal updates.
financial position if a (recognise) or only probable (disclose). - Confirmation from legal
receivable is likely but advisers of likely recovery
unrecognised. success.
Incorrect estimation of Accuracy and Valuation: - Written legal opinions.
financial effect of - Review management's assumptions and methods for - Calculation schedules of
contingent liabilities estimating financial effect. possible outcomes.
Management may - Compare estimates to similar past events. - Lawyer’s confirmation of
understate or provide - Discuss with legal counsel to validate the ranges of financial estimates and
vague estimates to reduce outcomes provided. uncertainties.
perceived risk.
Scope limitation due to Scope Limitation Consideration: - Absence of legal
management's refusal to - If permission to contact lawyers is denied, evaluate confirmation.
allow lawyer the impact on the auditor’s ability to form an opinion. - Documented refusal from
communication - Discuss with TCWG (those charged with management.
May limit the auditor’s governance) and consider impact on audit opinion. - Final audit report may
ability to obtain sufficient include qualified opinion or
appropriate evidence. disclaimer of opinion due to
limitation.

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Sale and Leaseback:

Audit Risk Procedure Evidence
Incorrect classification of Occurrence and Classification: - Sale contract and lease
transaction (not meeting - Examine the sale contract to assess whether IFRS agreement.
sale conditions under IFRS 15 criteria for a sale are met (e.g. transfer of control). - Board/management
15) - Discuss with management the commercial minutes referencing
Risk that the transaction is substance and intention of the transaction. transaction.
incorrectly classified as a - Evaluate whether the asset remains in use by the - Observation/inspection
sale, when control has not seller (indicating continuing control). confirming continued use of
transferred. the asset.
Inaccurate calculation of Accuracy: - Working papers showing
right-of-use (ROU) asset or - Recalculate the right-of-use asset based on the the ROU asset calculation.
gain/loss on sale proportion of rights retained. - Gain/loss computation
ROU asset must be - Review calculation of gain or loss – ensure it breakdown.
calculated as a proportion reflects only transferred rights. - Interest expense
of the previous carrying - Review lease term assumptions and interest rate calculation and lease
amount; misstatement can applied for finance cost. amortisation schedule.
impact profit/loss and
assets.
Non-disclosure or Presentation and Disclosure: - Lease and sale contracts.
misclassification of - Inquire of management and review minutes for - Enquiries and declarations
related-party nature indication of related-party involvement. from directors.
Risk that the transaction - Assess the sale and lease terms vs. market rates to - Market rent data or
involves a related party but identify potential undisclosed related-party valuation from property
is not disclosed, especially relationships. agent.
if terms are not at market - Review related-party disclosures for completeness - Related-party disclosure in
rates. and accuracy. financial statements.
Overstatement of sale Accuracy and Valuation: - Bank receipts for sale
proceeds or understatement - Trace inflow of sale proceeds to bank statements. proceeds.
of lease liabilities - Assess whether sale price reflects fair value. - Rental payment schedule
Risk that revenue is - Review the leaseback payments for proper and lease terms.
overstated if the proceeds classification of lease liability - Property valuation or
of the sale are inflated. expert assessment.
Misclassification of the Classification and Presentation: - Financial statement
transaction in the financial - Ensure that the transaction has been properly disclosures.
statements classified (sale vs. financing). - Management’s accounting
Risk of incorrect - Confirm the leaseback is correctly included under memo.
presentation of the IFRS 16 in the statement of financial position and - Lease liabilities
sale/leaseback as a profit or loss. presentation in SOFP and
financing arrangement - Review disclosures related to leases and related interest expense in P&L.
rather than a lease. parties

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Share-based Payment:
Audit Risk Procedure Evidence
Misclassification of the Classification: - Share-based payment
scheme - Review scheme documentation to determine scheme agreement.
Risk that the scheme is whether settlement is in equity or cash. - Board/shareholder minutes
incorrectly classified as - Evaluate accounting treatment applied to match the approving the scheme.
equity-settled or cash- classification. - Accounting entries (GL)
settled, leading to - Discuss the nature of settlement with management. and reconciliation to
misstated financials. financial statements.
Non-recognition of share- Occurrence: - Board/management
based payment transactions - Review board minutes for approvals of share-based minutes.
Risk that grants, exercises,payment plans and individual grants. - Deeds of grant,
or forfeitures are not - Confirm grant, vesting, exercise, and forfeiture performance conditions.
recorded. dates. - Share registers and payroll
- Verify exercises to share issue and registration records.
documents.
Incorrect fair value Accuracy: - Valuation report/model
measurement of options - Review valuation method used (e.g., Black-Scholes, outputs.
Risk that fair value is Monte-Carlo). - Market data supporting
inaccurately calculated due - Assess appropriateness of assumptions (volatility, assumptions.
to complex models or risk-free rate, expected term). - Expert opinion (if used).
inappropriate assumptions. - If complex, involve an auditor’s expert. - Audit working papers on
- Reperform calculations. recalculations.
Incorrect expense Allocation: - Vesting schedules.
allocation over vesting - Obtain vesting schedule and check expense - Payroll data on grantees
period allocation over the correct period. and leavers.
Risk that expense is not - Review projections of employee attrition and agree - Working papers showing
appropriately matched over to actual forfeitures. expense spread
the vesting period, - Check consistency and reasonableness of projection
impacting profits. methodology.
Incomplete or inaccurate Presentation: - Financial statements note
disclosure in financial - Review note disclosures for compliance with IFRS disclosures.
statements 2. - Directors’ remuneration
Risk that share-based - Confirm inclusion of directors' options in note.
payment schemes and remuneration disclosures. - EPS calculation workings.
related disclosures (e.g. - Ensure options are correctly included in diluted
directors’ remuneration) EPS.
are omitted or understated.
Understatement or Accuracy (EPS Impact): - EPS calculation sheets.
overstatement of EPS due - Confirm number of outstanding options. - Schedule of outstanding
to omission or - Recalculate diluted EPS to verify inclusion of options.
miscalculation of options share-based payments. - Option exercise terms and
timetable.

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Financial Instruments:
Audit Risk Procedure Evidence
Non-existence of financial Existence: - Bank confirmations.
instruments - Obtain confirmations from counterparties and - Counterparty
Risk that some financial banks. confirmations.
instruments are fictitious - Trace interest received or payments made to bank - Proof of
or misstated on the balance statements. payments/receipts.
sheet. - Review contracts for derivative instruments. - Contracts and legal
documents.
Incomplete recognition of Completeness: - Prior year working papers.
financial instruments (e.g. - Review prior year instruments and compare to - Contract reviews.
embedded derivatives) current year. - Board minutes.
- Examine contracts and board minutes to identify - Management
unrecorded items. representation letter.
- Enquire with management and review
representation letters.
Inaccurate accounting for Accuracy: - Valuation models used
derivatives and other - Recalculate unrealised gains/losses, interest (e.g. Black-Scholes).
complex instruments accruals, amortisation. - Working paper
- Review models used to measure fair value. recalculations.
- Use an auditor's expert, if necessary. - Audit expert reports.
Occurrence of Occurrence: - Control documentation.
unauthorised or speculative - Review controls over authorisation of financial - Internal audit reports.
transactions instruments. - Management
- Assess segregation of duties between front, middle, representations.
and back office. - Compliance reports.
- Enquire with management about authority limits
and risk appetite.
Subjectivity in valuation of Valuation: - Market data from pricing
financial instruments - Review assumptions used in fair value calculations. services.
(especially Level 2 & 3 fair - Reconcile prices to third-party sources or obtain - External valuation reports.
values) external valuation reports. - Assumption
- Review valuation hierarchy classification (Level 1, documentation.
2, or 3). - Fair value hierarchy
disclosures.
Inappropriate presentation Presentation: - Note disclosures in
or incomplete disclosures - Review compliance with IFRS 7 and IFRS 9 Financial Statements
disclosures. - Management
- Verify disclosures of risks, estimation uncertainty, representation letter.
and valuation techniques. - Disclosure checklist.
Incorrect application of - Hedge documentation.
Classification/Accuracy:
hedge accounting rules - Effectiveness test results.
- Review hedge documentation and effectiveness
- Working paper
tests.
calculations.
- Ensure hedging relationships meet IFRS 9 criteria.
- Confirm accounting treatment (e.g. cash flow vs.
fair value hedge).

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Risk to going concern due Going Concern: - Risk exposure analysis.

to volatile or speculative - Assess exposure to financial instruments, including - Sensitivity and stress
instruments sensitivity to market movements. testing results.
- Review stress testing by management and liquidity - Going concern
reports. assessments.
Lack of auditor Professional Scepticism & Planning: - Audit plan documentation.
understanding or - Involve specialists early in the planning process. - Team planning meeting
professional scepticism - Increase audit effort on areas with high estimation minutes.
over complex financial uncertainty or complexity. - Use of experts/specialists.
instruments

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Foreign Currency Transactions:

Audit Risk Procedure Evidence
Misclassification of Classification: - Chart of accounts or
foreign currency items - Review accounting policies to ensure consistent accounting manual.
(monetary vs non- application of monetary vs non-monetary distinction. - General ledger samples
monetary) - Test a sample of transactions for correct showing correct treatment.
classification.
Incorrect functional Classification: - Management
currency selection - Evaluate economic environment of the entity documentation for
(primary currency of sales, costs, financing). functional currency
- Confirm functional currency consistent with prior assessment.
periods unless a justified change occurred. - Board minutes supporting
a change, if any.
- Comparison of functional
currency factors.
Use of incorrect exchange Accuracy and Valuation: - Exchange rate source (e.g.
rates on initial recognition - Check foreign currency transactions use actual or central bank rates).
or period end average exchange rate (if stable and not materially - Documentation of
different). exchange rate applied.
- Test monetary items translated at period-end rate. - Trial balance/GL with
- Verify non-monetary items carried at cost are at translation entries.
original exchange rate. - Supporting invoices or
- Confirm non-monetary fair value items translated at contracts.
closing rate.
Misstatement due to Allocation/Classification: - Journals for exchange
incorrect allocation of - Review allocation of exchange differences: gains/losses.
exchange differences ▪ Monetary items to P&L. - Trial balance review.
▪ Equity for certain equity-reserve transactions (e.g. - Statement of financial
foreign operations). position and P&L
- Trace the cut-off and allocation of exchange reconciliations.
differences for unsettled items across periods. - Management computation
of exchange differences.
Inadequate or unstable Accuracy: -Forex rate history from a
average rate used - Confirm that average rate used is not materially reliable source.
different from actual rates. - Documentation of average
- Analyse foreign exchange rate volatility over the rate calculation.
period. - Forex volatility analysis.
Inaccurate conversion due Accuracy/Occurrence: - Internal control
to weak control systems - Understand and evaluate the internal control system descriptions.
around foreign currency transaction processing and - Walkthroughs/test of
rate conversion. controls.
- Test control effectiveness where appropriate. - System reports showing
currency translation.

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Payroll Expenses:
Audit Risk Procedure Evidence
Understatement of payroll Completeness: - Payroll accrual schedules.
accruals (e.g., unpaid - Review accruals at year-end for completeness of - HR records of unused
bonuses, commissions, unpaid payroll liabilities. leave balances.
leave entitlements) - Recalculate payroll accruals including unused leave - Bonus/commission
and bonuses. policies and approval
- Compare current year accruals to prior year and documents.
investigate significant fluctuations. - Prior year working papers
for comparison.
Payroll costs recorded for Occurrence: - Employee contracts and
fictitious or non-existent - Test a sample of payroll records and match personnel files.
employees (ghost employees to HR personnel files and employment - Payroll register.
employees) contracts. - Termination notices and
- Perform walkthrough of onboarding and HR logs.
termination procedures. - Audit software output
- Use audit software to identify duplicates, starters, reports.
and leavers.
Errors due to reliance on Occurrence/Accuracy: - Control walkthroughs and
poor payroll system - Evaluate and test controls over payroll processing test of controls
controls (e.g., authorisation of changes to payroll, segregationdocumentation.
of duties). - Evidence of supervisory
- Use test data to test payroll system logic. approvals.
- Payroll system access logs.
Misstatements due to Accuracy: - Payslips and payroll
incorrect payroll - Use audit software to reperform gross-to-net payroll summary reports.
calculations calculations for a sample of employees. - Tax tables and statutory
- Check correct tax rates, deductions and benefits are deductions.
applied. - Audit software results.
Fraudulent or unauthorised Occurrence/Accuracy: - Bank transfer listings.
payments - Match payroll bank payments to authorised - Employee bank details
employee accounts. from HR.
- Investigate any unusual or duplicate payments. - Payment authorisation
logs.
Unusual payroll expense Completeness/Accuracy: -Monthly payroll reports.
trends - Perform analytical procedures such as: - Budget vs actual analysis.
▪ Reasonableness test (employee count × average - Explanation of variances
salary). from management.
▪ Compare month-on-month trends and investigate
large variances.

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Chapter 10
Using the work of others
Using the work of others: Auditor to obtain sufficient and appropriate audit evidence so that
reliance can be placed on the work of others.

Internal Auditor: Service Organisation:

Expert:
Control testing and When client is using
for examples valuation observations of internal other orgnaisation for
services, liability auditor can be used to accounting/book-
assessment etc design audit procedures keeping

Factors to be considered before placing rely on others:

➔ Evaluate the competence,capabilities and objectivites of others:
Sources of evidence concerning the expert’s competence, capabilities and objectivity
include:
• Personal experience from previous work of the expert (e.g. through the same or
another client – professional scepticism must still be applied).
• Discussions with the expert (e.g. does he understand how his work relates to the
audit).
• Discussions with others who are familiar with the expert's work.
• Knowledge of that expert's qualifications, membership of a professional body or
industry association, license to practice or other forms of external recognition.
• Published papers or books written by the expert.
• An auditor's expert, if any, who assists the auditor in obtaining sufficient appropriate
audit evidence with respect to information produced by the management's expert.

➔ Obtain an understanding on the work performed:

• Nature, scope and objectives of the expert's work;
• Assumptions and methods to be used;
• Access to appropriate records and personnel;
• Respective roles and responsibilities;
• Nature, timing and extent of communications; and
• Form and content of the expert's report (must be in writing), including limitations of
use.

➔ Verify his independence/qualification

➔ Evaluate the appropriateness of experts work as audit evidence for relevent assertion
➔ Get a written representation if required
➔ No reference to use of others in Audit report

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Expert can be appointment by Management or by Auditor, and is needed in the

following scenarios:
• Valuations of complex financial instruments, land and buildings, plant and equipment,
jewellery, works of art, antiques, intangible assets, assets acquired and liabilities
assumed in business combinations and impairments.
• Actuarial calculations of liabilities associated with insurance contracts or employee
benefit plans.
• Estimation of oil and gas reserves.
• Valuations of environmental liabilities and site clean-up costs.
• Interpretations of contracts, laws and regulations.
• Analysis of complex or unusual tax compliance issues.

Using the work of Internal Auditor:

➔ The auditor is required to determine whether, in which areas, and to what extent the
internal audit function can be used.
• The internal audit function must first be evaluated to determine whether the work of
internal audit can be used.
• Where it can be used, the auditor must then determine the nature and extent of the
work of internal audit that can be used.
➔ Then, where the work of internal audit is used, the external auditor must perform audit
procedures on the work of internal audit.
➔ If not prohibited by law, the external auditor may obtain direct assistance from
internal auditors
Effect on Audit Report:
➔ If the opinion is unmodified, no reference should be made to an auditor’s expert
unless required by law or regulation.
➔ If required, the auditor must state that the reference to the expert does not reduce the
auditor's responsibility for the audit opinion.
➔ If reference to an expert is appropriate to explaining a modification, the auditor:
• Must again state that it does not reduce the auditor’s responsibility for the opinion;
• May need to obtain the expert's permission before making such a reference.
➔ Circumstances in which this may be appropriate:
• Management is unable/unwilling to obtain expert evidence;
• Management refuses to accept and use relevant and reliable expert evidence

Assurance report in case of use of Service Organisation:

➔ A Type 1 report deals with the design and implementation of the control systems and
should always be obtained as part of understanding the control system.
➔ A Type 2 report covers the effectiveness of the control system and is obtained when
audit assurance is sought from reliance on control effectiveness.

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Chapter 11
Group Audits
Group Audit: Auditing consolidated financial statement
Group auditor: Person who Audits Consolidated financial statement.
Component auditor: Auditor of Subsidary Company , Joint Venture ,Associates.
Significant Component: Any component which exceeds the benchmark of 15%
Asset/Liability/CF/Profit. Full audit is performed component can be significant if it has
significant risk of material misstatement.
For Non Significant Components: Analytical procedures are performed rather than full
audit.
Transnational audit: Audit of financial statements which may be relied upon outside the
audited entity's home jurisdiction.

Audit Plan of Group Audit:

Responding to assessed
Obtain an undertsanding
Setting materiality for the risks, including
of the group, its
group and all of the consideration of whether
component auditor and
components a component is significant
consolidation process
or not.

Determining the nature,

timing and extend of audit Taking care of special
procedures to be matters of consolidation
performed for group and process
all of the components

Special matters in Group Audit:

➔ Correct classification of investments
➔ Understanding different accouting policies and framework
➔ Fair Value calculation at the time of acquistion
➔ Accouting and valuation of Intangiable
➔ Valuation of goodwill
➔ Transaction of foreign subsidary in the consolidation process
➔ NCI valuation
➔ Elimination of intercompany balance
➔ Profit apportionment in case of acquisition & disposal
➔ Inconsistent accounting policies used across the group
➔ Adjustments appropriately reflects the events & transactions underlying them
➔ Accounting and disclosure of related parties transactions
➔ Share option treatment and disclosure.
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Group auditor cannot simply rely on the work of component auditors,they should
obtain an understanding of-
➔ Whether the component auditor understands & will comply with the code of ethics
➔ The professional competence of the component auditor
➔ Whether the group auditor will be able to be involved in the work of the component
auditor
➔ Whether the component auditor operates in a regulatory environment that actively
oversees auditors
Audit procedures of Group Audit:
➔ Agree the figures from the component financial statements into the consolidation
schedule to ensure accuracy.
➔ Recalculate the consolidation schedule to ensure arithmetical accuracy.
➔ Recalculate the translation of any foreign components to ensure accuracy.
➔ Recalculate any non-controlling interest balances to verify accuracy.
➔ Agree the date of any acquisitions or disposals and recalculate the time apportionment
of the results for these components included in the consolidation.
➔ Evaluate the classification of the component (i.e., subsidiary, associate, joint venture
etc.) to ensure this is still appropriate.
➔ For investments in associates, ensure that these are accounted for using the equity
method of accounting and not consolidated.
➔ Review the financial statement disclosures for related party transactions.
➔ Review the policies and year-ends applied by the components to ensure they are
consistent across the group.
➔ Reconcile intercompany balances and ensure they cancel out in the group financial
statements.
➔ Assess the reasonableness of the client's goodwill impairment review to ensure
goodwill is not overstated.
➔ Calculate any goodwill on acquisition arising in the year paying special attention to:
➢ Consideration paid – agree to bank statements.
➢ Acquisition related costs – ensure they have been expensed and not
capitalised.
➢ Contingent consideration – whether this has been valued at fair value taking
into account the probability and timing of payment.
➢ Deferred consideration – should be discounted to present value
Completion and Review:
➔ Group andit to ensure component audit has worked sufficiently & appropriately
➔ If any significant matter arises then check how component auditor dealt with it, were
additional procedures peformed?
➔ Also ensure uncorrected material misstatement are not Significant in aggregate
at group level.
➔ Group Audit can send a checklist/questionnaire to identify key aspect of audit
➔ If any component has going concern threat then letter of support from parent can be
obtained, however group auditor to verify if the letter can be relied upon.

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Reporting:
Where one or more of the subsidiaries has a modified audit opinion (regardless of who
audited the subsidiary) the group auditor must consider the impact of the issue on the group
financial statements, according to group materiality levels.

If the matter is not material in a group context, an unmodified

opinion will be issued.

If the matter is material to both the component and the group

the auditor should consider whether the issue causing the
modification can be resolved as a consolidation adjustment
and aim to resolve the matter with the client. If this is
resolved, an unmodified opinion can be issued.

If the matter is material and cannot be resolved through the

consolidation process, the modification should be carried
through to the group audit opinion (e.g. if the evidence is not
available to support the balance).

Note that a matter which is pervasive to the component may be material but not pervasive to
the group. In which case, a disclaimer of opinion or adverse opinion in a subsidiary will
become a qualified opinion in the group auditor's report.

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Chapter 12
Completion and Review

Final review helps to ensure that:

➔ The audit has been carried out in accordance with ISAs;
➔ All material issues have been properly dealt with;
➔ The auditor's report is consistent with work performed; and
➔ Audit work supports the audit opinion.

There are two review techniques:

➔ Discussion between reviewers and the other people involved in the audit; and
➔ Review of documentation.
➔ Types of Reviewer:
o Audit Engagement Partner
o Engagement Quality Reviewer (Mandatory for listed entities )

Review procedure:
➔ Ensure audit plan has been followed or flexed where necessary
➔ All ISAs and local legislature complaince has been followed.
➔ Sufficient and appropriate audit evidence have been obtained
➔ Review procedure:
➢ Materiality assessment- Calculate whether the misstatement is material
➢ Accounting treatment – Whether accounting treatment is in accordance with
the applicable financial reporting framework
➢ Risk of Material Misstatement - State which balances or disclosure in the
Financial Statement will be materially misstated
➢ Also verify if sufficient & appropriate audit evidence is obtained

Additional procedures at the time of completion and review of audit:

Final Analytical Procedures:

➔ Ensure that financial statements are consistent with financial reporting framework.
➔ Ensure that financial statements are consistent with auditor’s understanding, if there
are discrepancies then additional audit procedures have to be performed.
➔ Enables the auditor to form an overall conclusion.

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Subsequent Events: Ensure compliance of IAS 10 Adjusting and Non-adjusting events

Year End Audit Report Issue of Finacial Statement

Active Duty: Obtain sufficient & Passive Duty: Not require to No Obligation after
appropriate evidence that all perform audit procedure, if facts the issue of
subsequent events that require become known, take necessary financial statement.
adjustment or disclose have been action
identified and treated correctly

Some examples of procedures to be performed to identify Subsequent events before the date
of auditor's report:
➔ Review and understand management's procedures for identifying subsequent events.
➔ Read minutes of meetings of shareholders, board of directors, audit committees, etc held
after period end.
➔ Inquire about matters discussed at meetings for which minutes are not yet available.
➔ Read latest available interim financial statements, budgets, cash flow forecasts,
management reports, etc.
➔ Inquire of management and TCWG if they are aware of any subsequent events that would
affect the financial statements like:
• Have new commitments, borrowings or guarantees been entered into?
• Have sales of assets occurred or are any planned?
• Is the issue of new shares or debentures or an agreement to merge or liquidate being
planned?
• Have any assets been appropriated by government or destroyed (e.g. by fire or flood)?
• What developments are there regarding risk areas and contingencies?
• Have any unusual accounting adjustments been made or contemplated?
• Have events occurred (or are likely to occur) which will call into question the
appropriateness of accounting policies used (e.g. concerning the validity of the going
concern basis)?
• Have any events occurred that are relevant to the measurement of estimates or
provisions made?
➔ Inquire of lawyers concerning litigation and claims.

Other information received after the date of the auditor’s report may also indicate a
subsequent event impacting the financial statements. If financial statements:
Amended Not amended (when auditor thinks they
should be)
• Withdraw old auditor’s report. • Discuss issues with TCWG to seek
• Extend audit procedures, including amendment.
further subsequent events review up • If the financial statements are
subsequently released without

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to the date of the new auditor’s amendment, take action to prevent

report. reliance on the auditor's report (will
• Issue new report after approval of depend on the legal rights and
financial statements by management. obligations and legal advice).

Going Concern:
➔ Assess if there are any indicators which causes a threat to going concern of the client.
Indicators are:
➢ Negative Cash flow
➢ Overtrading
➢ Delay in suppliers payment
➢ Legal case
➢ Excess financing like bank loan, overdraft
➢ Restructure debt
➢ put research and development projects on hold;
➢ Liquidate assets.
➔ The auditor should consider factors which mitigate doubts about going concern, for
example:
Management's plans, which must be feasible, to maintain adequate cash flows by
alternative means:
• disposal of assets;
• rescheduling of loan repayments;
• obtaining additional capital.
• The availability of a suitable alternative source of finance.

➔ If going concern threat exist then financial statements have to be prepared on

liquidation basis/ breakup basis
➔ Ensure that adequate disclosures have been made of uncertainities

➔ Audit procedures to evaluate going concern threats are:

➢ Review subsequent events for items affecting going concern basis.
➢ Analyse and discuss latest available interim financial statements.
➢ Review terms of debentures/loan agreements for possible breaches.
➢ Read minutes of meetings for reference to financing difficulties.
➢ Inquire of the entity's lawyer regarding litigation and claims.
➢ Confirm existence, legality and enforceability of arrangements to provide or
maintain financial support with related and third parties and assess the
financial ability of such parties to provide additional funds.
➢ Consider unfilled customer orders.
➢ Discuss management's plans for future action:
• to liquidate assets;
• to borrow money or restructure debt;
• to reduce or delay expenditures;
• to increase capital.
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➢ Seek written management representations regarding plans that might have a

significant effect on solvency within the foreseeable future.
➢ Evaluate Management assesment, management should consider a period of 12
months
➢ Obtain legal representation from management regarding its plan for future &
adressing going concern issue

➔ Impact of Going conern on audit opinion:

➢ No going concern uncertainty → Unmodified
➢ Material uncertainty exist & disclosed by management → UnModified+ a
section 'Material uncertainity related to Going Concern'
➢ Material uncertainty exist & not adequately → Qualified / Adverse explaining
going concern issue & management failure
➢ Not a going concern & FS prepared on breakup basis - Modified with
emphasis of matter paragraph
Corresponding figures and Comparative figures:
➔ Auditor’s responsibility is limited with repect to corresponding and comparative
figures.
➔ Auditor should assess whether:
• accounting policies are consistent;
• figures agree; and
• appropriate disclosures made.
➔ If found to be materially misstated the auditor should ask management to revise the
corresponding figures. If management refuses to do so, the audit opinion should be
modified.
Other Information:
Following are examples of other information:
➔ Operational statements
➔ Financial highlights
➔ Sustainability, ethics, values, corporate social responsibility reports
➔ Chairman, CEO and CFO reports
➔ Directors' reports
➔ Strategic reports
➔ Corporate governance reports
➔ Selected quarterly data.

Auditor’s Responsibility with regard to other information:

➔ Obtain other information to be issued with the financial statements. It may all be
available before the auditor's report is signed or some may only become available
after. Approach is the same.
➔ Read the other information and consider whether:
o there is a material inconsistency between the other information and:
▪ the financial statements; and/or
▪ the auditor's knowledge of the entity and that obtained during the audit;
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o there are material misstatements in other information unrelated to the financial

statements or the auditor's knowledge of the entity and audit.
➔ Discuss any material inconsistencies (or misstatements) with management to
determine whether:
o a material misstatement exists in:
▪ other information; or
▪ the financial statements;
o the auditor's understanding of the entity and its environment needs to be
updated (i.e. a material misstatement does not, in fact, exist).
➔ If a material misstatement exists, ask management (and, if necessary, TCWG) to
correct.
➔ If not corrected before the auditor's report is to be signed:
o consider and communicate with TCWG the implications for the auditor's
report (e.g. an appropriate statement in the Other Information section of the
report); or
o withdraw from the engagement, if possible.
➔ If any other information is to be received after the date of the auditor's report, request
management to provide a written representation that the final version of that
information will be provided when available and prior to its issuance for the auditor to
review.
➔ If the other information contains a material misstatement:
o obtain legal advice; and
o seek to bring the matter to the attention of the users of the auditor's report.

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Chapter 13
Auditor’s Report
Evaluation of misstatements:
➔ The auditor’s conclusion takes into account the auditor’s evaluation of individually or
in aggregate uncorrected misstatements, if any, on the financial statements.
➔ The effect that uncorrected misstatements, individually or in aggregate, may have on
the auditor's report must be communicated to TCWG with a request for correction of
individually material amounts. Ask the management to correct the misstatement
➔ The auditor should then request a written representation that the effects of uncorrected
misstatements that remain (if any) are immaterial. A summary should be attached to
the representation letter.
In forming an opinion, the auditor's considerations of the financial statements must include:
➔ sufficient appropriate evidence obtained;
➔ uncorrected misstatements are not collectively or individually material ;
➔ prepared in accordance with the applicable financial reporting framework;
➔ adequate disclosure of significant accounting policies selected and applied;
➔ accounting policies are consistent with the financial reporting framework and
statutory requirements;
➔ accounting estimates are reasonable;
➔ information presented in the financial statements is relevant, reliable, comparable and
understandable;
➔ adequate disclosures of all material matters have been made;
➔ terminology used is appropriate;
➔ overall presentation, structure and content achieves a fair presentation;
➔ underlying transactions and events are presented in a manner that achieves a fair
presentation.

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Material:
Matter can be material
Pervasive: Affecting the
by amount or by
entire financial
nature
statements/ multiple
ledgers

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Audit Opinion Language:

Unmodified Opinion: "Financial Statement give true and fair view"

Qualified Opinion: " Except for the matter described in basis of qualified opinion section of the
report the financial statement give true and fair view"

Adverse Opinion: "In our opinion, because of the matters discussed in the basis of adverse opinion
section of the report the financial statement do not give true and fair view"

Disclaimer of Opinion: "We do not express an opinion ,because of the significance of the matter
described in the basis for disclaimer of opinion section of our report, we have not been able to obtain
sufficient appropriate audit evidence to provide a basis for an audit opinion.

Relevance of each paragraph:

Key Audit Matters(KAM): Applicable only for listed entities and only the following to be
mentioned:
➔ Areas of higher assessed Risk of Material Mistatement
➔ Areas involving significant auditors judgements
➔ Any significant event or transactions.
Emphasis Matter Paragraph(EOM): Used to highlight a matter which is present in the
financial statement, however is correctly disclosed and accounted for.
Other Matter Paragraph(OM): Included to bring notice to matter which are not accounted
or disclosed appropriately in the financial statements.
Other Information: Auditor has no explicit responsibility towards other information like
Chairman’s report, Enviornment report etc included in the financial statement, however
auditor must ensure that the information in these report is consistant with the audited
statements of profit and loss, statement of financial position, statement of cashflow etc.
Example of scenarios when adverse/disclaimer audit opinion is issued:
Adverse Opinion Disclaimer of Opinion
➔ Financial statements are prepared on ➔ Failure by client to keep adequate
wrong basis accouting records
➔ Non-consolidation of a subsidiary ➔ Refusal by management to provide
➔ Material misstatement which written representation
represents a substantial proportion of ➔ Failure by client to provide
the assets or profit sufficient and appropriate evidence

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If auditor identifies any material misstatement then the following process should be
followed:

Discuss with Those

charged with
governance
•To correct the • Seek external/
misstatement expert advice
•Effect of
•Consider uncorrect • Resign from
management's mistatement the engagement
integrity
Discuss with •Impact on audit
Management report Other steps

If Management impose limitation on audit scope then:

➔ Inform Those Charged with Governance
➔ Perform alternative audit procedures
➔ If unable to obtain sufficient & appropriate audit evidence& matter is material but not
pervasive- Issue qualified opinion
➔ If matter is pervasive- Withdraw from engagement
➔ If withdraw is n0t possible,issue disclaimer of opinion
➔ If auditor is withdrawing communicate material mistatement to those charged with
governance.

Note: Two types of Question are asked:

Explain the implication on the Critically appraise the suggested

auditor’s report auditor's report
1. Materiality Assessment 1. Paragraph being included in the wrong
2. Identify the type of issue order
3. Comment on the issue. 2. Wrong titles
4. State if issue is material or 3. Incorrect use of KAM,EOM & OM
pervasive or both Paragraph
5. Conclude an Opinion [Link] opinion being suggested
6. State any for the issue
reporting implications. 5. Inconsistent opinion wording
6. Unprofesional wording of the report in
general.
7. In sufficient explanation of the reason
for the modification.

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Chapter 14
Communicating with Those Charged with Goverance
➢ Matter to be reported to Those charged with governance (TCWG):
➔ The auditor's responsibilities in relation to the Financial Statement audit (Terms of
Engagement)
➔ Planned scope & Timing of the audit
• Auditor's approach to internal control relevant to the audit
• Extent of use of work of internal audit
• Busines risk that may result in material misstatement
• Communication with regulators
➔ Significant findings from audit:
• if the entity's accounting practices, including accounting policies,
accounting estimates and disclosures appears inappropriate, the reasons
why and alternatives available;
• changes made by management that the auditor considers to be
inappropriate;
• their effects in controversial or emerging areas;
• indicators of possible management bias (e.g. aggressive application of
accounting policies or estimates that may be considered as financial
statement manipulation).
• delays in management providing required information;
• time and other pressures exerted by management;
• unavailability of expected information including other information;
• restrictions placed on the auditor by management (scope limitation);
• management's unwillingness to cooperate with the auditor (e.g. refusal
to communicate);
• control weakness letters;
• subsequent events and going concern;
• key audit matters in the auditor's report;
• material uncorrected misstatements found in other information;
• possible or actual modifications to the auditor's report;
• adjusted and unadjusted errors;
• doubts on management's integrity;
• second opinions sought by management;
• doubts on continuing appointment;
• written representations.
➔ Control deficiencies i.e Control is designed,implemented or operated in such a way
that it is unable to prevent or detect & correct misstatement in financial statement on
time basis or a control is missing. Matters that the auditor may consider in
determining whether a deficiency (or combination of deficiencies) in internal
control constitutes a significant deficiency include:
• The likelihood that it could lead to material misstatements in future.

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• The susceptibility to loss or fraud of the related asset or liability.

• The subjectivity and complexity of determining estimated amounts.
• The financial statement amounts exposed to the deficiencies.
• The volume of activity that has occurred or could occur in the account balance or
class of transactions exposed to the deficiency or deficiencies.
• The importance of the controls to the financial reporting process, for example:
• General monitoring (such as oversight of management).
• Prevention and detection of fraud.
• Selection and application of significant accounting policies.
• Significant transactions with related parties.
• Significant transactions outside the entity's normal course of business.
• Period-end financial reporting process (e.g. non-recurring journal entries).
• The cause and frequency of the exceptions detected as a result of the deficiencies in
the controls.
• The interaction of the deficiency with other deficiencies in internal control.

➔ Matter of auditor independence

➔ Expected modifications in the audit report

Written Representation:
➔ Obtain sufficient & appropriate audit evidence to place rely on written
representation
➔ If there is doubt about the integrity of management & representation are
unreliable then issue disclaimer of opinion

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Chapter 15
Audit-related and Assurance services

Prospective
Financial
Information

Due Diligence

Limited
Forensic Audit

Level of Social and

Assurance Environmental
information review

Reasonable Statutory Audit

Nature of review Audit Review Agreed upon

Procedures
Assurance Reasonable but not Limited Assurance No Assurance
100%
Report Positive assurance on Negetive Assurance Fact finding process
assertion i.e on assertion
Nature of whether the subject Stating that their Stating that their
Opinion matter (Financial procedures have not procedures have not
Statement) is free identified any identified any material
from material material mistatement mistatement of the
misstatement of the subject matter subject matter
Standards ISA’s ISRE 2400/2410 ISRS 4400
Required by Law Voluntarily Voluntarily

Reporting: Negative conclusion. Langauge used it “Nothing has come to our attention based
on the procedures performed that the financial statement are not free from material
misstatement.”

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Report Content:
➔ Title
➔ Addresses
➔ Identification and description of subject matter
➔ Identification of the criteria
➔ Description of any significant inherent limitation
➔ Restriction on use of report
➔ Statement of responsibility of both Management and auditor
➔ Statement that engagement is performed in accordance with profession standard
➔ Summary of work performed
➔ Practioner’s conclusion
➔ Date
➔ Name of firm & location

Type of Assurance
conclusion

Unmodified:
If nothing has come to attention
to suggest the subject matter has
not been prepared in accordance
to the criteria

Modified- Adverse:
Modified- Disclaimer:
Modified- Qualified: If the subject matter is not
Not able to obtain sufficient
If the effect of the matter is prepared in accordance with
and appropriate evidence to
not pervasive the criteria and the matter is
form an conclusion
pervasive

Assurance Services in E-Commerce:

Key Risks & Concerns in E-Commerce:
Intentional Attacks Data theft (e.g., credit card info)
Impersonation of users
Theft/resale of proprietary data
Data corruption
“Back doors” for surveillance
Transmission Failures Unintentional errors during network transfer
Lost or duplicated transactions
Lack of Authentication No visual/verifiable identifiers
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Risk of dealing with imposters

Loss of Trust Requires digital signatures & encryption
Need for a trusted third party to validate
Window Dressing Controls may be marketing tools, not real protections
Users need assurance of genuine adherence to control
procedures
Misuse of Profiles E-commerce activity enables profiling of users
Risk of data misuse or sale to third parties
Economic Pressures Competitive cost pressures may reduce quality of
security/control
Increased risk of compromised integrity

Role of Assurance Services

Provide independent assurance that:
➔ E-commerce systems/tools follow accepted integrity & security standards
➔ Similar to internal control reporting under assurance engagements

Types of Assurance Services

1. Integrity Services assure that:
• Transaction elements are as agreed
• Systems do not alter documents/data

2. Security Services assure that:

• Parties are authentic
• Documents are protected from unauthorised access
• Systems provide appropriate authentication & protection

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Chapter 16
Review and Related Services
The matters to be recorded in the engagement letter include:
➔ Intended use and distribution of the financial statements.
➔ The applicable financial reporting framework.
➔ The objective and scope of the review.
➔ The practitioner’s responsibilities.
➔ Management's responsibility for financial statements and access to information,
etc.
➔ A statement that engagement is not an audit and no audit opinion will be given.
➔ Reference to the expected form and content of the report to be issued.
Interim Financial Information: Financial information for a period shorter than a financial
year.
Review: To express a conclusion whether anything has come to the auditor’s attention that
causes them to believe the financial information is not prepared in all material respects with
the financial reporting framework.
Acceptance Consideration:
➔ Comply with ethical requirements
➔ Ensure competence to perform the review
➔ Ensure adequate resources are available to perform the work
➔ Verify intergrity of management
➔ Evaluate reasons why the company has not approached their statutor auditor,if
applicable
Procedures:
➔ Enquiries of related parties
➔ Analytical Procedures
➢ Comparison of the current financial statement v/s Prior period v/s forecast or
v/s budgets v/s Ratios
➢ Ratios:
1. Gross profit margin
2. Net profit margin
3. Interest cover
4. Receivable days
5. Payable days
6. Inventory days
➔ Other review procedures to obtain sufficient appropriate evidence:
1. Consider any significant risk
2. Read the most recent annual & comparable prior period interim
financial information
3. Consider materiality to determine the nature & extent of procedures
performed

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4. Consider the nature & effect of any uncorrected material misstatement

in prior prepared financial statement
5. Significant deficiences in internal control
6. Review internal audit report
7. Ensure all applicable financial reporting framework are followed
8. Evaluate change in internal controls
9. Evaluate fraud if there was any during the period
Due Dillegence: Fact finding exercise and is usually conducted to reduce the risk of poor
investment decisions

Purpose:
➔ Reveals any potential problem before acquisition decision is made
➔ Helps to decide - whether or not to gо ahead with acquisition
➔ When to go ahead with acquisition
➔ How much should be paid for the taget company
➔ Increase stakeholder confidence in the acquisition decision

Benefits of advisor carrying of Due Diligence:

➔ Less management time is spent on assessing the decisions
➔ Identification of operational issues and risk assesment of the target company
➔ Liabilities evaluated & identified
➔ Identify assets not capitalised
➔ Gathering information exercise
➔ Enhances the credibility of investment decision
➔ Helps in planning the acquisition
➔ Claims made by vendor can be substantiated
➔ Evaluation of post acquisition synergies & economies of scale & potential further cost
Acceptance Consideration:
➔ Evaluate the reason for acquistion
➔ Scope of due diligence
➔ Deadline
➔ Need for secrecy
➔ Resources required
➔ Ethical threats
➔ Depending on Client’s requirements, it can be
➢ an assurance assignment
➢ Agreed upon procedure assignment
Procedure:
➔ Analytical review of past financial statements to assess the recent financial
performance of the target company.
➔ Review of forecasts including an assessment of the reasonableness of assumptions
used in the forecast.
➔ Review of existing contracts to identify when the contracts expire and whether the
contracts will be affected by a change of owner.

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➔ Review of terms and conditions of related party transactions which may have affected
the performance of the target company.
➔ Inspection of asset registers and ledgers to identify possible overstatement which
would affect the price paid.
➔ Review of the accounting policies of the target company and how they compare with
the acquiring company. The results of the target may be recalculated on the basis of
the acquiring company’s policies to assess the difference arising from less prudent
accounting policies.
➔ Review of board minutes to identify significant issues affecting the target company
which may affect its value.
➔ Correspondence between the company and its lawyers regarding any outstanding legal
issues.
➔ Correspondence from the tax authority regarding any tax investigations or issues.
➔ Review of industry data to assess the status of the industry and industry specific risks.
➔ Gather information about matters and issues relation to:
➢ Tax
➢ Legal
➢ Human Resources
➢ Financial
➢ Operational
➢ Commercial
Note: Exam questions will often ask for procedures to be performed for a due diligence
engagement. These procedures need to identify the information relevant to the client's
investment decision. Based on this information, the client will decide whether to go ahead
with the acquisition or it will help them decide what price they are willing to pay.
One way to approach the question is to put yourself in the position of the client.
➔ What would affect your decision?
➔ What would make you want to go ahead with the acquisition?
➔ What would make you think it's not such a good investment?

Agreed Upon Procedures:

The objective of such an engagement is to report on the factual results (“findings”) of the
procedures performed as agreed with the client. Users of the report must therefore form their
own conclusions as no conclusion is reached by the practitioner.
Circulation of the report must therefore be restricted to those with whom procedures have
been agreed. Other parties, unaware of the reasons for the procedures, may misinterpret the
results.

Compliance Engagement:
The objective of such an engagement is to collect, classify and summarise financial
information (i.e. using accounting rather than auditing expertise) into an understandable form
(e.g. financial statements). Since the assertions underlying the information
are not tested, no assurance is expressed. However, users of the compiled data should still
benefit from the involvement of the practitioner in its compilation.

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Chapter 17
Review of Prospective Financial Information (PFI)

PFI: Financial Information based on assumptions about future events.

Matters to be considered before accepting the engagement:
➔ Intended users: used as an internal management tool or for thrid party distribution for
loan application, funding etc
➔ Distribution of report: Internal/External, Limited/General
➔ Nature of assumption used: The basis of assumption are histrorical trends, hypotetical
assumption etc
➔ Elements of report
➔ Period covered

Terms of Engagement:
➔ Nature of procedure to be performed
➔ Type of assurance to be provided
➔ Form of conclusion to be given
➔ Management’s reponsibilities
➔ Restriction on use and distribution
➔ The basis of setting the fees

Procedures:
➔ General: Check mathematical accuracy
➔ Specific:
1. Comparing anticipated revenues/expense with historic trends
2. Assess internal controls if required
3. Verify necessary documents whenever required
4. Obtain Written Representation from management

Report: Important matters to be consdiered in the report :

➔ Identification of subject matter on which assurance is provided
➔ Caveats : Achievability of the results given the nature of assumptions and inherent
limitations in the forecasting process
➔ Negative assurance on:
1. Assumptions are resonable
2. Applicable financial reporting framework have been applied
3. Report is based on the assumption
➔ Reporting langague “ Noting has come to our attention to suggest the assumptions
used in the forecast don’t provide a resonable basis”

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Chapter 18
Forensic Audit
Forensic Audit: Audit performed to obtain evidence in respect of a fraud or insurance claim
Objective:
➔ Identification of the Type of frand that has occurred
➔ How long the fraud has been occuring for
➔ How the fraud was concealed
➔ The main suspect
➔ Quantification of financial losses
➔ Gathering of evidence to support legal action/ recovery of losses
➔ Providing advice to prevent fraud

Acceptance
Consideration Procedures Reporting
Inquire with
Ethical threats management and key Basic report will
Professional behaviour staff include:
Confidentiality Interview the staff and Summary of procedures
Objectivity and Integrity suspect involved performed
Management intergrity Test of controls Summary of results of
Resources, professional Detailed inspection and procedures
competence and due care analysis of documentary Any limitation in the
evidence s scope of engagement
Analytical procedures Conclusion
Automated tools
and techniques/ CAATs

Application Example Type of work performed

Fraud Theft of company funds,tax Funds tracing, asset identification & recovery,
Investigation evasion,insider trading forensic intelligence gathering, due diligence
reviews, interviews, detailed
review of documentary evidence
Insaurance Claim Business Detailed review of the policy from either an
interruption,property insured or insurer's perspective to investigate
losses,motor vehicle coverage issuer, identification of appropriate
incidents,personal liability method of calculating the loss,
claims,cases of medical quantification of losses
malpractice wrongly
dismissal
Professional Loss suffered as a result of Advising on merits of the case in regards to
Negligence placing reliance on liability,quantifyiiing losses
professional advisor

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Chapter 19
Audit of Social, Enviornmental, Sustainability and Integrated reporting
What is Sustainability Reporting?
➔ A way for organisations to communicate ESG (Environmental, Social, Governance)
impacts and performance.
➔ Goes beyond financial reporting, offering insights into:
o Risks & opportunities
o Business resilience
o Sustainable development contributions

Benefits of Sustainability Reporting:

➔ Enhances accountability
➔ Supports risk identification and management
➔ Unlocks opportunities through transparency

Frameworks for Sustainability Reporting:

GRI Standards (Global Reporting Initiative)
• Most widely used framework globally
• Related to:
o Triple Bottom Line Reporting
o CSR (Corporate Social Responsibility) Reporting
ISAE 3000
• Current standard for assurance of non-financial information
• Covers social, environmental, and sustainability reporting
ISSA 5000 (Exposure Draft – June 2023)
• Proposed IAASB standard for Sustainability Assurance Engagements
• Aims to improve consistency and quality in assurance work over ESG reports

What is Integrated Reporting?

A concise communication explaining how an organisation’s strategy, governance,
performance, and prospects create value over the short, medium, and long term, considering
the external environment. Helps:
o Businesses make sustainable decisions
o Stakeholders understand true performance

The Six Capitals

The Integrated Report expands beyond financial info, showing how value is created and
affected through:
➔ Financial – Traditional capital and cash flows
➔ Manufactured – Tangible infrastructure and tools
➔ Intellectual – Intangibles like IP, innovation
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➔ Human – Skills, knowledge, motivation

➔ Social and Relationship – Community trust, partnerships
➔ Natural – Environmental inputs (renewables/non-renewables)

The 8 Content Elements

All content is interconnected and designed to answer: "To what extent has the entity achieved
its strategic objectives?"
➔ Organisational overview & external environment
➔ Governance and its role in value creation
➔ Business model
➔ Risks & opportunities affecting value
➔ Strategy & resource allocation
➔ Performance against strategic objectives
➔ Outlook – future challenges & implications
➔ Basis of presentation – data selection and measurement

Performance Reporting
Includes qualitative and quantitative disclosures such as:
➔ KPIs and metrics linked to targets, risks, opportunities
➔ Effects on all capitals, not just financial (e.g., human, natural)
➔ State of stakeholder relationships
➔ Linkages between:
o Past and current performance
o Current performance and future outlook

Pre-condition for Sustainability and Intergrated Audit:

Specific matters to be considered include, for example:
➔ Whether there are different levels of assurance for different disclosures, for example:
o Limited assurance on disclosures related to the social topic and reasonable
assurance on disclosures related to the environmental topic;
o Limited assurance on disclosures about risks and opportunities related to the
social topic, and reasonable assurance on the process to prepare the disclosures
related to the social topic.
➔ How the applicable criteria were selected or developed.
➔ If the sustainability information within the scope of the assurance engagement is not
all of the sustainability information expected to be reported, the reasons why.
➔ How the sustainability information is to be presented (e.g. in a regulatory filing or in a
standalone report).
➔ Other matters, for example, events, transactions, conditions and practices, that may
have a significant effect on the assurance engagement.

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ESG Audit:

Potential Risk Areas:

A wide range of business risks and risks of material misstatement may be associated with
environmental performance. For example:
➔ The risk of non-compliance with laws/regulations.
➔ The risk of compliance costs arising.
➔ The possible effects of customers' preferences (e.g. on inventory net realisable value).
➔ Provisions (e.g. for site restoration).
➔ Contingent liabilities (e.g. arising from pending legal action).
➔ Actual liabilities (e.g. fines and penalties imposed).
➔ Non-current asset values (e.g. property near a contaminated site).
➔ Capital or revenue expenditure on clean-up operations.
➔ Product redesign costs.
➔ Going concern. For example, if new (or more stringent) environmental legislation
threatens product viability or withdrawal of an operating license
Need:
➔ Many companies publish Social and Enviornment reports with annual reports
➔ Reports on fairness and validity of key peformance indicators (KPIs)
➔ Adds credibility to Socail and Enviornment report
•Agreeing the scope of engagement
•Obtain understanding of the entity
•Evaluate appropriateness of KPIs, reviewing and agreeding the KPIs over which assurance
is to be provided
Planning •Identify evidence/ Availability of evidence
•Consider the risk of manipulation

•Enquiry with Management and staff

•Recalculate the KPIs
•Inspect sufficient and appropriate documentary evidence
•Obtain external confirmation
Procedures •Obtain Management written representation

•Lack Skills
•Subjectivity
•Lack of evidence
•Lack of systems and control to record information
Problems •Manipulation of data
•KPIs may not be specific enough to measure the performance accurately

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Chapter 20
Audit of in the public sector
Performance information in the public sector: Performance audit aims to provide
management with assurance & advice regarding the effective functioning of its operational
activities.
It also incudes-
➔ Value for money Audit -3Es
➔ Operational audit
Value for money audit:

Economy: Obtaining the

lowest cost for the
required level of quality

Efficiency: Achieveing
Effectiveness:
the maximum output
Achieving the objective.
with the minimum input

Peformance information should be:

➔ Relevant
➔ Complete
➔ Relaible
➔ Understandable
➔ Timeliness
➔ Valid
➔ Accurate
Procedures:
➔ Inspection of documents
➔ Enquiry with Management
➔ Perform analytical procedures
➔ Obtain written representation from management
➔ Recalculation of amounts

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Chapter 21
Current Issues and Development
Fraud and Going Concern:
Expectation(s) gap – the difference between what an auditor actually does (and is required to
do by legislation and auditing standards) and what stakeholders and commentators think the
auditor’s obligations might be and what they might do.
Proposed ISA 570 (Revised): Going Concern
Main Aims of the Revision
➔ Improve consistency in how auditors deal with going concern issues.
➔ Strengthen the auditor's evaluation of management’s going concern assessment
(encouraging more professional scepticism).
➔ Increase transparency in auditor communication and reporting.

Key Changes Proposed:

➔ New Definition: Material Uncertainty (Going Concern)
• Means serious doubts about the company’s ability to keep running unless something
is done.
• Auditors must decide if this uncertainty needs to be clearly disclosed in the financial
statements.
➔ Clarification of "May Cast Significant Doubt"
• Used when a company might not meet obligations unless management takes
remedial action, like:
o Selling assets quickly
o Getting extra funding
➔ Assessment Period Extended
• Management must assess going concern for at least 12 months from the date of
financial statement approval (not just reporting period).
• If not done, auditor must ask for extension.
➔ Third Party Financial Support
• If a company is relying on support from a related party or owner, the auditor must:
o Check if the party intends and is able to provide the support.
➔ Audit Committee (TCWG) Oversight
• Auditor must now understand how those charged with governance (TCWG)
oversee the going concern assessment.
• Communication with TCWG must be improved and documented.
➔ More Disclosure in Auditor’s Report
• Every audit report must now mention going concern, even if there’s no issue.
• For listed companies, auditor must explain how they evaluated management’s going
concern assessment.

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Climate-Related Risks:
The majority of climate-related information is currently disclosed outside the financial
statements (e.g. in a management commentary, sustainability information or corporate social
responsibility reporting). In the context of an audit of financial statements, the auditor may
have a responsibility for such “other information” (ISA 720).
However, most, if not all entities, are likely to be affected by climate change; directly or
indirectly.

Auditors must consider how climate risks affect different areas of the audit. Here’s how they
relate to specific ISAs:
➔ ISA 315 (Revised 2019) – Risk Assessment
• Auditors assess if climate risks affect the business model or supply chain.
• Example: A company’s operations depend on regions prone to floods or droughts.

➔ ISA 320 – Materiality

• Climate risks may impact what is considered material.
• Example: Investors may consider environmental disclosures important even if the
financial impact is small.

➔ ISA 250 – Compliance with Laws and Regulations

• Breaches of environmental laws can lead to fines, penalties, or lawsuits.
• Auditors check for potential liabilities.

➔ ISA 540 – Accounting Estimates

• Climate events (e.g. floods, heatwaves) can impact future cash flows or asset values.
• Auditors need to be extra careful with judgements and assumptions in estimates.

➔ ISA 620 – Using Experts

• Auditors may need environmental experts to estimate things like:
o Decommissioning costs
o Restoration of land after environmental damage

➔ ISA 570 – Going Concern

• Climate-related issues (e.g. wildfires, extreme weather) may raise doubts about a
company’s survival.
• Auditors assess whether the company can continue operating for the next 12 months.

➔ ISA 701 – Key Audit Matters (KAMs)

• Climate-related risks may become KAMs.
• Example: If new laws ban fossil fuels, this may affect the value of a company’s
transport fleet.

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Current Issues and Challenges in Development of Sustainability Assurance Standards:

➔ Limited vs Reasonable Assurance
• Limited assurance gives less confidence than reasonable assurance.
• Just because sustainability systems are weak doesn’t mean auditors should always
default to limited assurance.
• Risk: this could confuse users and create a new expectation gap.
• There’s a need for clear guidance on assessing material misstatements in
sustainability info.

➔ Reporting Criteria Issues

• The current standards (e.g. ISSB) tell companies what to report, but not how to
report.
• This lack of clear criteria makes assurance harder.
• Subjective statements (e.g. "We make people happier") can’t be assured.
• Qualitative statements (e.g. "We offer equal pay") can be assured if terms are
clearly defined.

➔ Double Materiality
• Companies must report:
• How sustainability issues affect their finances (financial materiality).
• Their impact on people and the planet (impact materiality).
• This makes assurance more complex, as it covers both financial and
social/environmental impacts.

➔ Use of Estimates
• In sustainability, estimates are often based on future scenarios, not past data.
• Example: Scenario analysis for climate resilience (as per IFRS S2).
• This makes applying traditional audit standards like ISA 540 more difficult.

➔ Using Experts
• Sustainability assurance needs more expert input than regular audits.
• Experts are often deeply involved – not just used occasionally.
• Auditors remain responsible for the opinion, even when relying on experts.
• This raises the challenge of balancing assurance knowledge with technical expertise.

➔ Assurance Reports
• The final report must clearly explain the work done and the level of assurance.
• But current standards (e.g. ISAE 3000) don’t provide templates or examples.
• New guidance is being developed under proposed ISSA 5000.

➔ Risk of Greenwashing
• Greenwashing = misleading users about how “green” or sustainable an
organisation really is.

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Proposed ISSA 5000

The IAASB approved an exposure draft (ED) for proposed International Standard on
Sustainability Assurance (ISSA)TM 5000 General Requirements for Sustainability Assurance
Engagements (ED-5000). The project proposal identified six priority areas for more
specificity and guidance:
➔ difference in work effort between limited and reasonable assurance;
➔ suitability of reporting criteria;
➔ the scope of the engagement;
➔ obtaining and evaluating evidence;
➔ the entity's system of internal control; and
➔ practitioner’s materiality.

Technology Risk
➔ Cybersecurity Risk
➔ Business Model Risk: When an organisation effectively implements an industry-
changing technological innovation
➔ Data Analytics Privacy Risk
➔ Technology Project Risk

Big Data and Data Analytics

Emerging developments in the effective and appropriate use of technology, including data
analytics, to enhance audit quality.
The growing use of technology in the audit present opportunities, limitations and challenges .
However, there is a general consensus that ISAs are not “broken”
Opportunities: • Obtaining a more effective and robust understanding of the entity and its
environment which will enhance the quality of the auditor's risk
assessment and response;
• Ability to gather audit evidence from the analysis of larger populations;
• Better risk-based selections from populations for further testing;
• Obtaining a broader and deeper understanding of the entity and its
environment to inform risk assessment and business operations.
Limitations : • Data that is not relevant, not well-controlled or unreliable could have a
negative effect on audit quality;
• Ability to test 100% of a population still does not provide more than a
reasonable assurance opinion;
• It cannot replace the need for professional judgement and professional
scepticism in the audit of accounting estimates, disclosures and
qualitative information;
• The risk of "overconfidence" in technology (e.g. false belief computer
output is infallible).
Challenges • Data security and privacy (e.g. in transferring data to the auditor);
• Fitting the evidence derived into the current audit evidence model in
ISAs;
• Resource availability (e.g. skilled data scientists to support the audit
team);
• Investment in re-training and re-skilling auditors.

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Automated tools and techniques (ATT) – a broad term describing the tools and techniques
used by auditors in performing audit procedures.
➔ Use of ATT in Risk Assessment
• ATT helps identify risks of material misstatement more effectively.
• Can be used in risk assessment and further audit procedures.
• For example, data analytics may detect unusual transactions that need further
investigation.

➔ ATT in Substantive Procedures

• When used in substantive analytical procedures, the auditor should:
o Check data reliability.
o Ensure expectations are precise (e.g. drill into data fields).

➔ Documentation Requirements
• Same principles as traditional methods (ISA 230 applies).
• Auditors must document:
o Name of ATT and data sources.
o Filters or criteria used in identifying anomalies.
o Visual reports or exports used as evidence.
o How ATT was validated and reconciled.

➔ Risk of Overreliance on Technology

• Automation bias = trusting technology blindly without scepticism.
• Example: Auditor ignores inconsistent inventory costs because they trust the system
too much.
• Firms should help reduce this risk by:
o Training auditors to understand ATT tools.
o Promoting professional scepticism.
o Requiring manual checks or review where needed.

➔ Investigating Exceptions
• Auditors don't need to investigate every anomaly detected by ATT:
o Sample testing is okay if conclusions can be drawn reliably.
o In risk assessment, unusual items should generally be looked into (e.g. ask
questions, seek evidence).
• Performance materiality still applies, even when analysing entire populations using
ATT.

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