Audit and Assurance: Risk-Based ISA Engagements
Audit and Assurance tests risk-based ISA audits in Nigeria: planning, risk assessment, evidence, completion, reporting and quality management under ISQM 1 and ISQM 2. FRC oversight and ICAN ethical requirements are examinable context.
Core rules
- Audit risk = inherent risk x control risk x detection risk. Detection risk is managed through the nature, timing and extent of procedures.
- Set overall materiality using a benchmark such as 5% of profit before tax for profit-oriented entities, then performance materiality and a clearly trivial threshold.
- ISA 315 (Revised) requires understanding the entity, its IT environment and internal controls, and identifying significant risks.
- Obtain sufficient appropriate evidence under ISA 500; external confirmations under ISA 505 and accounting estimates under ISA 540 need specific procedures.
- Evaluate going concern under ISA 570 and subsequent events under ISA 560.
- Report under ISA 700; include key audit matters under ISA 701 for listed entities; modify under ISA 705; use emphasis of matter or other matter paragraphs under ISA 706, not as a substitute for modification.
Worked example
Profit before tax is NGN 800m. Overall materiality at 5% is NGN 40m. Performance materiality at 75% is NGN 30m. Clearly trivial is 5% of overall materiality, NGN 2m. Uncorrected misstatements total NGN 35m. They exceed performance materiality, so the auditor requests correction and evaluates the aggregate effect. If management refuses and the effect is material but not pervasive, a qualified opinion is appropriate; if pervasive, adverse.
Traps
Using total assets when profit is the relevant benchmark; ignoring qualitative materiality such as fraud or covenant breaches; treating a key audit matter as a modification; relying on internal audit without evaluating objectivity and competence; accepting a management representation as sole evidence; and failing to document how the conclusion was reached.