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AGENDA
• ACCA audit monitoring feedback
• Clarity ISA implementation
• Materiality (ISA 320 and ISA 450)
• Documentation in smaller audits
• ISQC1
• Questions
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• 426,000 students
• 162,000 members
• 173 countries
• ACCA ‘Quality Checked’
• Quality monitoring in 15
countries
• 89 offices
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2012 audit visit outcomes: UK and Ireland
“How Practice Monitoring assesses compliance with ISAs” http://www.accaglobal.com/en/member/professional-standards/monitoring/auditing/assess-compliance.html
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“the overall objectives of the auditor are…to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error” ISA 200.11
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Why do files ‘fail’?
substantive
evidence
audit
report ISA
compliance
going
concern
‘key’ areas
planning
performance
recording
risk identification material misstatement?
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Need to know more?
ACCA online CPD
“ISA 200” http://www.accaglobal.com/en/member/cpd/auditing/cpd-articles/isa-200.html
“Practical auditing under clarity ISAs” http://www.accaglobal.com/en/member/cpd/auditing/articles/clarified-isas.html
Clarity on ISA hotspots http://www.accaglobal.com/en/member/cpd/auditing/cpd-articles/isa-hotspots.html
“ISA 550, related parties”
http://www.accaglobal.com/en/member/cpd/auditing/articles/related-parties.html
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Original ISA 320
Revised and Clarified ISAs: materiality
ISA 320 Plan ISA 450
Evaluate
ISA 700 Report
New
Revised Revised
• placed where makes most sense
• promote greater consistency in
judgments
• Reflect the 3 different audit stages
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ISA 320: determining materiality
The auditor shall determine:
• materiality for the financial statements
as a whole
• (possibly) materiality for particular
classes of transactions, account
balances or disclosures (influence on
users’ economic decisions?)
• performance materiality
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ISA 320: calculating materiality
Professional judgment
Benchmark Percentage x
• elements of the financial statements
• items focused on by users
• nature of the entity/industry/economic
environment
• structure of the entity
relationship
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ISA 320: What is performance materiality?
Used for:
• assessing the risks of material
misstatement
• determining the nature, timing and
extent of further audit procedures
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Performance materiality: Why?
planning the audit solely to detect individually
material misstatements
aggregate of individually immaterial misstatements
causes the accounts to be materially misstated
no margin for possible
undetected misstatements
leaves
overlooks possibility
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The purpose of performance materiality
Designed to ensure that at the end of the
assignment:
Detected Undetected +
Aggregate
misstatements
<
Materiality for the accounts as a whole
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• must be lower than materiality for the
accounts as a whole
• may use
- one PM for all items
- different PM for different items
• if different materiality determined for
each balance, class of transaction,
disclosure etc….must determine PM
for each balance, etc
Determining performance materiality (PM)
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Take into account:
• nature of the entity
• misstatements identified in previous
audits
• expectation of misstatements in the
current audit
Determining performance materiality (PM)
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What is a misstatement?
reported
financial
statement
item
requirement of the
applicable
financial reporting
framework
Difference
• amount
• classification
• presentation
• disclosure
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• accumulate identified misstatements
(other than “clearly trivial”)
• consider need to revise overall audit
strategy and plan
• communicate misstatements to
management and request correction
• evaluate effect of uncorrected
misstatements
• written representations
• documentation
ISA 450: what does this mean?
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ISA 230.2: Purposes of Audit Documentation
• evidence of the auditor’s basis for a
conclusion about the achievement of
the overall objectives of the auditor
(ISA 200.11)
• (“A sufficient and appropriate record of
the basis for the auditor’s report” – ISA
230.5)
• evidence that the audit was planned
and performed in accordance with
ISAs
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ISA 230.3: Additional purposes
• assist in planning/performing the audit
• assist the direction, supervision and
review of the audit work (ISA 220.2)
• enabling the engagement team to be
accountable for its work
• record matters relevant to future audits
• enabling EQCR/ISQC 1 review
• enabling external inspections
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Working papers: form, content and extent
The auditor shall prepare audit
documentation that is sufficient to
enable an experienced
auditor, having no previous connection
with the audit, to understand….
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Working papers: form, content and extent
nature, timing and extent of
the procedures performed;
results of the procedures
performed and the evidence
obtained;
significant matters arising;
significant professional
judgments made;
the conclusions reached;
“Work done”
“Results”
“Conclusion”
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Identifying characteristics of the specific
items tested
dates and unique PO
numbers;
scope of the procedure and
identify the population
source, starting point and
the sampling interval
Purchase orders
All items over a
specific amount
from a given
population
Systematic
sampling from a
population of
documents
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‘Sufficient’ audit documentation
“Oral explanations by the auditor, on
their own, do not represent adequate
support for the work the auditor
performed or conclusions the auditor
reached, but may be used to explain
or clarify information contained in the
audit documentation” ISA 230.A5
If it’s not documented…. it wasn’t done!
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D-I-Y
ISAs: what are my options?
Software provider
Professional body?
• read ISAs
• CPD/workshop?
• design from
scratch
• CPD/workshop?
• buy in
programmes
• assistance
• practical guide
• small & medium
firms
• examples
• Free?
Your programme Tailor it Follow it
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UK PN26 Characteristics of the smaller entity audit
• concentration of ownership and
management
• uncomplicated operations
• simple accounting systems and few,
informal controls
• small audit team
• proprietary audit system
http://www.frc.org.uk/Our-Work/Publications/APB/PN-26-(Revised)-
Guidance-on-Smaller-Entity-Audit-D.aspx
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Examples
• Appendix B of PN 26
• particularly Example 11
• other examples provide excellent
guidance
• if followed, would result in a significant
increase in the number of satisfactory
files
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Policies and procedures
ISQC 1: the requirements
Documented
Communicate Apply
Monitor
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• engagements performed in
accordance with requirements
• reports issued are appropriate to
circumstances
ISQC 1: why my firm?
Quality
controls Consistency
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• Documentation of policies
• Ethics
• dependence on fees from one
source
• loan to client (overdue fees or
otherwise)
• long association
• employment/business relationship
Monitoring: the most common issues
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D-I-Y
ISQC 1: what are my options?
Training Co Professional Body?
• read ISQC 1
• CPD/workshop?
• design from
scratch
• CPD/workshop?
• buy in manual
• assistance
• practical guide
• small & medium
firms
• examples
• Free?
• Self-diagnostic
checklist
Your policies
and procedures Tailor it Follow it
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