The revised standards provide for major changes in the approach to identifying and assessing risks, which will ensure a focused response from auditors to these risks. The enhancements affect all audits and audit firms of all sizes will need to revise their approach to risk assessment.
Readiness for the changes needs to be on every audit firm’s to-do list.
There will be some practical challenges in making the transition to the revised International Standard on Auditing (ISA) 315 that firms need to take note of.
Auditors are urged to familiarise themselves with the revised requirements to ensure a smooth transition in implementing the revised standard.
The new ISA 315 (revised and ISA 330) requires the auditor to identify and assess many different types of risks. During this session, I am going to explain the meaning of all the different risks that must be identified, assessed, and documented by the auditor.
New terminology, concepts and requirements
• New assertions and combinations of assertions
• New risk assessment procedures (RAP) to obtain an understanding of the entity and its environment
• Document the sources of information from which the understanding was obtained
• Class of transaction or account balance ("COTAB")
• Individual Account balance, class of transaction and other disclosure ("COTABD")
• Significant classes of transactions, account balances and disclosures (“SCOTABD)
• Transactions related to account balances (“TRAB”)
• Relevant assertions
• Controls to be identified for purposes of evaluating the design of a control and determining whether the control has been implemented
• Identification of the risk of material misstatement at the assertion level for COTABD and then assess only the identified risks of material misstatement at the assertion level
• Consideration of whether automated tools and techniques should be used to assist with obtaining an understanding of the entity and its environment and to perform risk assessment procedures.
• Extent of work needed for indirect and direct controls
• Use of inherent risk factors
• Spectrum of inherent risk
• Likelihood and magnitude of a possible misstatement on a range from higher to lower, when assessing risks of material misstatement
• “Stand-back" provision to evaluate the completeness of SCOTABD
• Design and perform substantive procedures for each material COTABD
• Substantive procedures for SCOTABD, i.e., those with relevant assertions
• Specific procedures to perform when a significant risk is identified (including fraud testing)
• Assertions to be tested for material COTABD as well as an immaterial COTABD
All auditors and their staff who is responsible for the audit of financial statements
