Audit, Assurance and Business Management
Audit, Assurance and Business Management tests risk-based audit, evidence and ethics, internal control, and the governance and business-risk context in which assurance is provided.
Core rules
- Audit risk = inherent risk × control risk × detection risk; risk assessment drives the nature, timing and extent of procedures.
- Assertions include occurrence, completeness, valuation, rights and obligations, and presentation.
- Evidence must be sufficient and appropriate; external evidence is generally stronger, and inquiry alone is not enough.
- Ethics require independence, objectivity and confidentiality; quality management supports consistent engagement performance.
- Internal control includes the control environment, risk assessment, control activities, information and monitoring; segregation of duties reduces fraud risk.
- Business management considers governance, stakeholder impact, strategy and going-concern risk.
Worked example
Receivables are LKR 20 million, the allowance is LKR 0.5 million, and receivable days have risen from 45 to 75. The risk is valuation and existence: receivables may be overstated and expected credit losses understated. The response is to test subsequent receipts, review the aged analysis, challenge management’s assumptions and recalculate the allowance. If projected misstatement exceeds materiality, propose an adjustment.
Traps
Treating an audit as absolute assurance; relying only on management inquiry; using written representations as sole evidence; confusing a review engagement’s limited assurance with an audit; ignoring subsequent events after the reporting date.