ISA 7 đánh giá rủi ro và kiểm soát chất lượng kiểm toán

Chapter 7
Assessing Specific Business Risks and
Materiality

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-1


Assessing risk of material misstatement
•

AUS 406/ASA 330 (ISA 330) points out that when
considering assessment of risk of material misstatement
at assertion level, an auditor must relate these back to
account balances/classes of transactions/disclosures.
• Needs to consider both the particular characteristics of
each class of transaction, account balance or
disclosure (inherent risks) and whether the auditor’s
assessment takes account of the entity’s controls
(control risk).

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-2

Learning Objective 1:

Inherent Risk (IR)
•

Inherent risk:
–

•

Susceptibility of account balance or class of transactions
to material misstatement, given inherent and
environmental characteristics, without regard to internal
control structure.

An assessment of IR and Control Risk (CR) can be
combined or separate. Irrespective of this, an auditor is
required to:
–
–

assess IR at financial report level for audit plan,
assess related to assertions at account balance or class
of transactions level when developing audit program.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-3

Business Risk (BR) and IR
•

Entity’s business strategy and associated risks will
affect an auditor’s assessment of IR at the financial
report level.
• Where an auditor can trace BRs to areas of a financial
report which are likely to be misstated, this gives rise to
a higher IR assessment for that area.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-4


Factors affecting IR at financial report
level
•
•
•
•
•

Integrity of management;
Management experience, knowledge and changes
during the period;

Unusual pressure on management;
Nature of entity’s business; and
Factors affecting the industry.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-5


Inherent risk and computer Information
Technology (IT)
•

As IT risks can be pervasive to the entity, factors
affecting overall IR associated with IT are:
–
–
–
–
–
–

Significant changes in IT;
Insufficient IT skills and resources;
Lack of entity support and focus;
High dependence on IT;
Reliance on external IT; and
Reliability and complexity of IT.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-6


Inherent risk assessment at assertion level
•

IR is greater for some assertions and related classes of
transactions than for others.
• Auditors will normally focus on:
–
–
–
–
–
–

Accounts likely to require adjustment;
Complexity of underlying transactions;
Judgment involved in determining account balance;
Susceptibility of assets to loss or misappropriation;
Occurrence of unusual and complex transactions,
particularly at or near year-end; and
Transactions not subject to ordinary processing.

Copyright  2006 McGraw-Hill Australia Pty Ltd

Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-7


Effect of inherent risk on account balance
assertion

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-8


Learning Objective 2:

Special Areas of Audit Risk:
FRAUD
•

At the planning stage, an auditor should consider the
risk that misstatements from fraud or error will not be
detected.
• It is easier to miss material misstatements resulting
from fraud because fraud involves acts designed to
conceal it.

Copyright  2006 McGraw-Hill Australia Pty Ltd

Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-9


Audit procedures for fraud at planning
stage
•

An auditor will use their experience, knowledge and
training to determine whether fraud could occur.
• An auditor needs a thorough understanding of a client’s
business in order to identify opportunities for the
perpetration of fraud.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-10


Increased attention to fraud
•
•
•
•
•

Since June 2004, auditors have been required to pay
greater attention to fraud.
Auditors need to specifically consider risks of material
misstatement in financial report due to fraud;
Auditors must discuss an entity’s susceptibility to fraud
with other members of the audit team; and
Auditors must make more extensive inquiries of
management with respect to fraud.
Auditors are now specifically required to consider the
risk of fraud in revenue recognition, and the possibility
of management override of controls.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-11


Red flag indicators of fraud
•

An auditor commonly uses a checklist to identify
increased risks of fraud. Where risk is high, it is called a
“red flag”.
• These are listed in Table 7.1 (p. 304) and are grouped
under:
–
–
–

–
–
–

Management;
Unusual pressures within an entity;
Market pressures;
Unusual transactions;
Unsatisfactory records; and
IT environment.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-12


Earnings management
•

Earnings management occurs when judgment in
financial reporting and in structuring transactions is
used to alter financial reports to influence the
perceptions of stakeholders.
• Earnings management involves those responsible for
preparing the financial report such as the Chief
Financial Officer (CFO) and Chief Executive Officer
(CEO).
• Incentives to manage earnings can be either

behavioural or market-based.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-13


Broad categories of earnings management
•
•
•
•
•

Earnings management by clients may fall into the
following categories
Intentional violations of accounting standards and other
reporting requirements that are individually immaterial;
Inappropriate revenue recognition;
‘Big bath’ charges under the guise of restructuring; and
Improper accruals and estimation of liabilities in good
times.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-14

Considering illegal acts
•

AUS 218/ASA 250 (ISA 250) provides guidance on an
auditor’s consideration of illegal acts (noncompliance
with laws and regulations):
–
–
–

An auditor must understand the legal and regulatory
framework applicable to the entity and industry;
An audit normally does not include procedures specifically
designed to detect illegal acts; and
An auditor must recognise circumstances requiring
special attention (e.g. debenture deed requires a specific
current ratio be maintained) and consider these in
preparation of audit programs.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-15


Learning Objective 3:

Related Parties
•

An auditor must identify all related parties when
planning the audit because:
–

–

–

The existence of related parties or related-party
transactions can affect the financial information. E.g.
accounting standards require disclosure of information
relating to related parties.
The reliability of audit evidence is a function of the source
of that evidence. Therefore, evidence from related parties
and transactions with those parties need to be more
carefully evaluated.
The initiation of a related-party transaction might be
motivated by other than ordinary business conditions,
such as fraud.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-16

Procedures for identifying related parties
•
•
•
•
•
•

Review the previous period’s working papers for known
related parties;
make inquiries of management concerning the names
of all related parties;
review the entity’s procedures for identifying related
parties;
inquire about management’s and directors’ affiliations
with other entities;
review minutes of meetings; and
inquire of other auditors involved in the audit.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-17


Learning Objective 4:

Preliminary Assessment of Going Concern
Basis

•

Going Concern:
–

–
–

Entity expected to pay debts as and when they fall due,
and continue to operate without any intention necessarily
to liquidate or otherwise wind up operations. Refer AUS
708.03/ASA 570.06 (ISA 570.03)
Auditors are required by Standards to assess going
concern at planning stage.
Imminent business failure might have an effect on
appropriateness of presentation of financial report or
might motivate management misrepresentations.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-18


Preliminary Assessment of Going Concern
Basis (cont.)
•

Early identification helps focus audit effort on

appropriate assertions in the financial report, and
permits early communication with management.
• An auditor focuses primarily on anticipated events
during the relevant period, approximately 12 months
from the date of the current audit report to the expected
date of the next audit report.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-19


Examples of indications of going concern
problems
•

Operating indicators include:
–
–
–
–
–
–
–
–
–
–

Lack of strategic direction;
Deficiencies in the governing body;
Lack of management expertise;
Concentration of risk in few products;
Loss of major market;
Prolonged industrial action;
Shortages of important supplies;
Deficiencies in management information systems;
Rapid or unplanned development of business; and
Uninsured or underinsured disasters.

See Table 7.2 (p. 311)
Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-20


Examples of indications of going concern
problems (cont.)
•

Financial indicators:
–
–
–
–
–
–

–
–
–
–

High gearing;
Fixed-term borrowings;
Reliance on short-term borrowings;
Adverse key financial ratios;
Lack of sustainable operating profits;
Dividend arrears;
Inability to pay;
Difficulty in complying with terms of loan agreements;
Denial of trade credit; and
Inability to obtain necessary financing.

See Table 7.2 (p. 311)

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-21


Examples of indications of going concern
problems (cont.)
•

Other indications:

–
–
–
–
–
–

Non-compliance with capital requirements;
Undue influence of market-dominant competitor;
Legal proceedings against the entity;
Technical developments making key product obsolete;
Adverse changes in legislation; and
Failure of other entities in industry.

See Table 7.2 (p. 311)
Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-22


Mitigating factors
•

Auditor should consider mitigating factors. These
include:
–

Asset factors – sale of assets, with delayed

replacement.

–

Debt factors – unused lines of credit, ability to renew
or extend existing loans.

–

Cost factors – ability to reduce costs.

–

Equity factors – additional contributions from owners,
subsidiaries or associates.

See Table 7.3 (p.312)
Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-23


Learning Objective 5:

Materiality
•

Materiality:

–

•

Information, which if misstated, omitted, or not disclosed
separately in a financial report may adversely affect either
user decisions or the discharge of accountability by
management. Refer AUS 306.03/ASA 320.06 (ISA
320.03)

Auditor uses materiality to:
–
–

Evaluate the presentation of financial data.
Determine the nature, timing and extent of audit
procedures (sometimes called planning materiality).

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-24


Quantitative guidelines:
MATERIALITY
•
•
•

•
•

Material
  10% of appropriate base amount
Immaterial   5% of appropriate base amount
Judgment  5-10% of appropriate base amount
Base amount for balance sheet items  equity, or the
appropriate asset or liability class total.
Base amount for income statement items  net profit or
loss and appropriate revenue and expense amount, for
year or averaged over a number of years.

Copyright  2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett

7-25