When the auditor obtains audit evidence about the operating effectiveness?
SA 330 deals with the auditor’s responsibility to design and implement responses to the assessed risk of material misstatement identified in accordance with SA 315. Show
Let’s understand in detail about SA 330 Auditor’s Responses To Assessed Risk. ObjectiveTo obtain sufficient appropriate audit evidence about the assessed risk and design & implement appropriate responses to those risk SA 330 is effective for the audit of financial statements for periods beginning on or after 1st April 2008 Overall ResponsesDesign and implement overall responses to address the assessed risks of material misstatement at the financial statement level. Audit ProceduresNature, timing and the extent of the audit procedures are to be based on and are responsive to the assessed risk of material misstatement at the assertion level. Consider the reason for the assessment given to each class of transaction, account balance and disclosure including:
Test of ControlsControls have to be tested to confirm its operating effectiveness and sufficient appropriate audit evidence to be obtained when:
More persuasive audit evidence, the greater the auditor relies on the control effectiveness Nature and Extent of Test of ControlsTimings of Controls TestTest the controls for the particular time or throughout the period for which the auditor intends to rely on those controls related to risk assessment procedure Interim PeriodWhen auditor obtains audit evidence about control’s operating effectiveness during an interim period, then:
If Audit Evidence obtained in previous audits can be used?The auditor should consider the length of the time period that may elapse before retesting a control and take into account the following: i. The effectiveness of other elements of internal control including risk assessment process Controls over Significant RisksAny significant risk in auditor’s opinion should be tested in the current period. During this process, evaluate whether there are any misstatements detected by substantive procedure indicates the control are not operated effectively. If there are deviations, the auditor should understand its potential consequences through specific inquiries and determine:
Substantive ProceduresIrrespective of assessed risk of material misstatement, substantive procedures for each material class of transaction, account balance and disclosure are to be performed: If misstatement that the auditor did not expect arises at an interim date, then the nature, timing, and extent of substantive procedures for the remaining period has to be modified Adequacy of Presentation and Disclosure“Evaluate whether the overall presentation of the financial statements, including related disclosures, is in accordance with the applicable financial reporting framework” Sufficiency and Appropriateness of Audit EvidenceBefore the conclusion of the audit, the auditor should determine whether the audit procedures performed and audit evidence obtained is appropriate for the assessment of the risk of material misstatement at the assertion level. An auditor should consider all relevant evidence regardless of whether it appears to corroborate or to contradict the assertions Documentation
If the audit evidence about the operating effectiveness control obtained in previous audits is used by the auditor, such fact should be documented. Auditor’s documentation should demonstrate that the financial statements agree to the accounting records. When an auditor is considering using evidence obtained in previous audits about the operating effectiveness of controls the auditor shall consider the following?29. If the auditor plans to use audit evidence about the operating effectiveness of controls obtained in previous audits, the auditor shall include in the audit documentation the conclusions reached about relying on such controls that were tested in a previous audit.
How frequently must an auditor test operating effectiveness?Auditing standards allow a three-year rotation for control testing, as long as the area tested is not a significant risk. But if the auditor plans to rely on a test of controls related to a significant risk, operating effectiveness must be tested annually.
What is operating effectiveness of control?The test of operating effectiveness of a control is confirming that a control that is stated to be in place by the organization has been established for a period of time (typically 12 months).
What is test of design and test of operating effectiveness?Test of Design (TOD) – which verifies that a control is designed appropriately and that it will prevent or detect a particular risk. Test of Effectiveness (TOE) – although it's less reliable, it is use for verifying that the control is in place and it operates as it was designed.
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