Auditing and Assurance: Concepts and Applications in the Engagement
From planning to reporting
Understand the flow of an audit engagement: client acceptance and continuance, engagement letter, planning, risk assessment, understanding internal control, designing responses, performing substantive procedures, evaluating misstatements, obtaining written representations, and issuing the report.
Internal control
Know the components: control environment, risk assessment, control activities, information and communication, and monitoring. The auditor obtains an understanding of controls and tests operating effectiveness when relying on them. A deficiency is classified as a deficiency in design or operation, a significant deficiency, or a material weakness. Communicate significant deficiencies and material weaknesses in writing to those charged with governance.
Audit sampling and documentation
Apply sampling risk and non-sampling risk. For tests of controls, use attribute sampling; for substantive tests of details, use variables sampling or monetary unit sampling. Documentation must be sufficient for an experienced auditor with no previous connection to the engagement to understand the work performed.
Audit reports
Know the elements of the report and the modification logic: a qualified opinion for material but not pervasive misstatements; an adverse opinion for material and pervasive misstatements; a disclaimer for material and pervasive scope limitations. Add an emphasis of matter or other matter paragraph where appropriate, but never to fix a misstatement.
Traps
- Using an emphasis of matter paragraph instead of modifying the opinion.
- Treating a scope limitation as a misstatement.
- Forgetting that management representations are required even when other evidence exists.
Worked rule
Material and pervasive misstatement leads to adverse; material and pervasive inability to obtain evidence leads to disclaimer.