Auditing and Assurance
What this domain tests
Auditing and Assurance tests the application of Myanmar Standards on Auditing (MSA), which are based on ISA. You must understand audit risk, materiality, evidence, planning, internal control, going concern, audit reports and professional scepticism.
Core rules
- Audit risk = inherent risk × control risk × detection risk. Detection risk is controlled by the auditor through the nature, timing and extent of procedures.
- Obtain sufficient appropriate audit evidence; external evidence is generally more reliable than internal evidence.
- Set overall materiality using a benchmark such as profit before tax, revenue or total assets, then set performance materiality below it.
- Evaluate going concern for at least 12 months from the financial statement date unless the framework requires longer.
- Modify the audit opinion when misstatements are material, or when sufficient evidence cannot be obtained.
Worked example
Profit before tax is MMK 800 million. The auditor selects 5% as the materiality benchmark: overall materiality = MMK 40 million. Performance materiality is set at 75% of overall materiality = MMK 30 million. Clearly trivial threshold might be 5% of overall materiality = MMK 2 million. A misstatement of MMK 35 million is aggregated and evaluated against overall materiality; it is material and could require adjustment or an modified opinion if uncorrected.
Traps
- Thinking a higher detection risk means more substantive testing; the relationship is inverse.
- Describing an audit as a guarantee of no fraud.
- Using one materiality figure for all balances without considering qualitative factors.
- Failing to document procedures performed and conclusions reached.