P7 Summary of ISA
P7 Summary of ISA
Overview
ISA 200 265
Basic concepts/issues affecting whole audit
Overview 2
ISA 700 720
Audit report issues
ISA 200
Lots of technical terms to learn
As such, of minor importance to P7
Reasonable Assurance
High, but not perfect level of assurance
Material
Something that could affect users decisions on FS
Misstatement
Mistake caused by error, or deliberate fraud
Audit Risk
Risk of material misstatements, and auditor fails to detect
Assess risk, and respond to them (with audit work)
Objective/Aim
Required actions by auditor
Guidance
Introduction
Examples
Definitions
Help for audits of smaller companies
Auditor responsibility
To assess risks of fraud (ISA 315) and respond (ISA 330)
Deficiencies / Consequences /
Recommendations for Improvement
Covering Letter
Only those problems found in normal audit process so
not comprehensive list of problems company has
Only for use by mgmnt no 3rd Party use of Letter
Enquire of management
Analytical Procs (to see how figures inter-relate)
Inspect operations / website / mgmnt accounts
Last years audit papers
Info Required
Control Procedures/Activities
CARCAP, from class notes!!
Info System
How transactions initiated, processed and recorded
Risk Assessment
Monitoring (by Internal Audit)
C
O
C
C
A
ompleteness
ccurrence
ut-Off
lassification
ccurate Value
C ompleteness
O wnership (Rights & Obligations)
V aluation
E xistence
DISCLOSURE NOTES
C
O
V
U
ompleteness
ccurrence
alues correctly disclosed
nderstandable / clearly presented and explained
Computer Controls
General (passwords, back-ups, security, anti-virus)
Application (range limits, sequence checks)
By NATURE (Qualitative)
E.g. director pay
Performance Materiality
Smaller than Materiality, to recognise that during audit
process smaller misstatements will add up!
End of audit
Aggregate all misstatements to assess overall effect
Analytical Procedures
Comparing current year with last year, Industry etc.
Negative confirmations
Reply needed only if disagreeing with balance
Issues
If Op Bals wrong, likely to affect current year?
If Comparatives wrong see ISA 710
Work
Agree Op Bals to last years FS
Get working papers from the other firm
If last years audit report modified, may affect this year
Method
Compare auditor EXPECTATION with DRAFT FS
If expectation uses predicted relationships, and is close to
draft figure, may be enough evidence in itself
Use prior year, Industry, budgets, ratios etc.
Completion Stage
To take account of figures (and expectations) changing
during audit
FRS 1
Net liabilities
Loans need to be repaid soon (or other big outflows)
Suppliers denying credit
Loss of key staff / products / markets
Legal claims / regulatory investigations
New competitors
Losses / poor cash position
Ratio analysis looks bad
Consider:
Independence
Competence
experience
Opinion
Whether FS are true and fair
Other Matter
Same as E of M, except the matter to be highlighted is NOT
in FS, and is INCORRECT (eg error in Chairman Statement)