CPA Australia Advanced Audit and Assurance cheat sheet
CPA Australia Advanced Audit and Assurance · Keep the key ideas within reach.
Advanced Audit and Assurance: Engagement, Risk and Professional Judgement
Assurance engagement elements (ASAE 3000): a three-party relationship (practitioner, responsible party, intended users), a subject matter, suitable criteria, sufficient appropriate evidence, and a written conclusion conveying a level of assurance.
Audit risk model: AR = IR x CR x DR. Detection risk is the only component the auditor controls, so high inherent or control risk forces lower acceptable detection risk and more substantive testing.
Materiality benchmarks (typical ranges): profit before tax 5-10%, total revenue 0.5-1%, total assets 1-2%, total equity 1-5%. Performance materiality is usually 50-75% of overall materiality.
Threats to independence (APES 110): self-interest, self-review, advocacy, familiarity, intimidation. Safeguards include rotating engagement partners, independent quality review, and removing fee dependence.
Audit committee matters: the auditor must communicate significant findings, independence matters, and the planned scope and timing of the audit (ASA 260).
Professional scepticism requires corroborating management representations with external evidence; contradictory evidence cannot be overridden by a signed management representation letter.
Client acceptance and continuance: assess integrity of owners and management, competence of the accounting team, and the firm's ability to apply professional standards and ethical requirements.
Fraud risk (ASA 240): presume revenue recognition fraud risk exists, hold a mandatory fraud brainstorming session, and require inquiry of management about knowledge of fraud, plus testing of journal entries.
Evidence, Reporting and Other Assurance Engagements
Audit opinion decision path: unmodified if financial report is free from material misstatement and complies with the framework; qualified if material but not pervasive; adverse if material and pervasive; disclaimer if unable to obtain evidence and the effect is material and pervasive.
Key Audit Matters (ASA 701) are required for listed entities: select matters of most significance, explain why they were significant, and describe how the audit addressed them.
Going concern (ASA 570): if a material uncertainty exists and disclosure is adequate, include an Emphasis of Matter or Other Matter paragraph; if disclosure is inadequate, modify the opinion.
Subsequent events (ASA 560): adjust the financial report for conditions existing at reporting date; disclose non-adjusting events that are material. The auditor's responsibility extends to the date of the auditor's report.
Assurance conclusion levels: reasonable assurance gives a positive-form conclusion; limited assurance gives a negative-form conclusion ("nothing has come to our attention").
Assurance report on prospective financial information must state the assumptions, the responsible party's responsibility, and that actual results are likely to differ.
Emphasis of Matter paragraphs do not modify the opinion and may only reference matters already properly presented or disclosed in the financial report.
Group audits (ASA 600): the group engagement partner must be satisfied with component auditor competence and independence, and must be involved in risk assessment and the review of component work.
Regulation, Quality Management and Ethics in Advanced Assurance
APES 110 fee dependence: if fees from one client exceed 15% of the firm's total fees for two consecutive years, disclose to those charged with governance and arrange an engagement quality review.
Quality management (ASQM 1): the firm must establish a system addressing engagement performance, ethical requirements, acceptance and continuance, human resources, monitoring and remediation, and information and communication.
Independence prohibitions: the audit firm and its staff cannot prepare source documents, assume management responsibilities, or have a direct financial interest in the client.
Confidentiality (APES 110): information may be disclosed only when permitted by law, required by law, or with client consent; confidentiality continues after the engagement ends.
Professional competence and due care: auditors must maintain knowledge of current standards and complete mandatory continuing professional development.
Contingent fees are prohibited for assurance engagements because they create a self-interest threat that cannot be adequately safeguarded.
An engagement quality control reviewer is required for listed entity audits and for engagements where the firm identifies significant risks; the reviewer must not be the engagement partner.
Independence is both a state of mind (independence of mind) and an appearance (independence in appearance); the appearance test is judged from the perspective of a reasonable and informed third party.
Contemporary Assurance Topics and Reporting Judgements
Other information (ASA 720): read the other information, identify material inconsistencies with the audited financial report, and report if uncorrected material misstatements remain.
Extended external reporting assurance: assurance over sustainability and integrated reports typically uses the same evidence hierarchy and materiality concepts as financial statement audits.
Service organisation reports: a type 1 report covers the suitability of controls at a point in time; a type 2 report covers operating effectiveness over a period.
Related party transactions (ASA 550): the auditor must identify related parties, remain alert for undisclosed transactions, and obtain written representations about completeness of related party disclosures.
Estimates and fair values (ASA 540): assess management's methods, assumptions and data, and evaluate whether the estimate is reasonable in the context of the financial report.
The auditor must document the rationale for judgements on materiality, significant risks, and the basis for the audit opinion (ASA 230).