Auditing and Assurance (ISA)
Auditing and Assurance (ISA)
This domain tests ISA-based audit methodology: risk assessment, materiality, evidence, reporting and specific areas such as fraud and going concern. Questions often require choosing the response that is both sufficient and appropriately targeted.
Core rules
- ISA 315 requires understanding the entity, its environment and internal control, and identifying risks of material misstatement at assertion level.
- ISA 320 distinguishes overall materiality, performance materiality and the clearly trivial threshold.
- ISA 500 requires sufficient appropriate evidence; inquiry alone is rarely sufficient.
- ISA 700/701 require an opinion and, for listed entities, key audit matters; ISA 705 governs modifications.
- ISA 570 requires evaluating going-concern assumptions and disclosure; ISA 240 requires fraud-focused procedures, including journal entry testing.
Worked example
Revenue is KD 50 million. The auditor sets overall materiality at 1% of revenue, KD 500,000. Performance materiality is 75% of that, KD 375,000; the clearly trivial threshold is 5% of overall materiality, KD 25,000. Two unadjusted misstatements of KD 200,000 and KD 180,000 are individually below materiality but total KD 380,000. Because the aggregate exceeds performance materiality, the auditor evaluates their effect, considers qualitative factors and requests correction or obtains a written representation if uncorrected.
Traps that cost marks
- Using overall materiality as the testing threshold instead of performance materiality.
- Relying on management inquiry alone for a significant risk.
- Treating a key audit matter as a substitute for a modified opinion.
- Ignoring the effect of aggregated misstatements that are individually below materiality.