Audit and Assurance
What the exam tests
Audit and Assurance tests your ability to design a risk-based audit using ISAs, as adopted by ICAM, within Malawi's regulatory framework: the Companies Act 2013 audit requirement, statutory oversight of the profession by the Malawi Accountants Board under the Public Accountants and Auditors Act, and the IESBA Code of Ethics as the basis for independence judgements.
Core rules
- Risk assessment (ISA 315): understand the entity and its environment, including the IT environment and internal controls, then identify risks of material misstatement at the assertion level.
- Audit risk model: audit risk = inherent risk × control risk × detection risk. Detection risk is the auditor's lever; it falls as substantive procedures increase.
- Materiality (ISA 320): set overall materiality on a benchmark (profit before tax, revenue or total assets), performance materiality below it, and a clearly trivial threshold for accumulating misstatements.
- Reporting (ISA 700/701/570): key audit matters are communicated for listed entities; going concern conclusions must be explicit.
Worked example: materiality
An entity reports profit before tax of K400m, revenue of K6bn and total assets of K3bn. Profit is stable, so the auditor uses 5% of profit before tax as the benchmark.
Overall materiality = 5% × 400m = K20m. Performance materiality at 75% = K15m, applied to individual account balances and transaction classes so uncorrected aggregate misstatements are unlikely to exceed overall materiality. Clearly trivial threshold at 5% of materiality = K1m; anything below that is not accumulated. If profit were volatile or near breakeven, the benchmark would shift to revenue (typically 0.5–1%) or total assets.
Traps that cost marks
- Concluding that strong controls remove the need for substantive testing - detection risk can fall, never to nil.
- Confusing audit risk (risk of an inappropriate opinion) with the client's business risk.
- Reporting a key audit matter for a non-listed client where ISA 701 does not apply.
- Issuing a qualified opinion for a material misstatement when a disclaimer is only appropriate for a pervasive scope limitation.