AUDITING AND ASSURANCE ：

SPECLIZED INDUSTRIES

18th September 2023; 1:00 – 4:00pm

 RECAP

1. 1. Discuss the difference between integrity and objectivity in relation to the audit.

2. 2. What do we mean by professional competence and due care?

3. 3. Why the auditor should adhere to confidentiality principle?

4. 4. What is professional skepticism and why it is necessary for the audit

professional to carry out its responsibility with an attitude of skepticism?

5. 5. What are the three general principles of an audit?

 AUDIT PROCESS

Phases of an Audit Engagement

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Initial
Planning

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Scope and Strategy

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Identify
Conclude Audit and assess
and risks
Communicate Methodology

Design and
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 AUDIT PROCESS

The initial phase of a financial statement audit involves the initial planning activities.

INITIAL PLANNING OF THE AUDI T ENGAGEMENT

1. Understand service requirements and agree the scope of services.
1. a.) Understand the expectations of those charged with governance and
management to help us determine the service requirements. We meet with those
charged with governance and management early in the audit to agree the
scope of services, the timing of our work, the expected outputs and delivery
dates, and any expectations we have from management.
2. b.) Assess the result of client and engagement acceptance and continuance process
procedure including the risk factors at the beginning of the audit. Determine the
effect on risk assessment and incorporate the necessary additional actions or
procedures into our audit strategy and audit plan to address these risk factors.
 AUDIT PROCESS

INITIAL PLANNING OF THE AUDI T ENGAGEMENT

1. Understand service requirements and agree the scope of services.
1. c.) Obtain and engagement agreement in accordance with the general terms and
conditions of the engagement agreement, supplemented by local audit
requirements, if applicable.
2. Sample engagement letter:
 AUDIT PROCESS

INITIAL PLANNING OF THE AUDI T ENGAGEMENT

II. Evaluate compliance with ethical requirements, including independence.
1. a.) Determine compliance for both the firm and the members of the audit team.
2. b.) In accordance with Independence Policy, perform procedures to determine
compliance with ethical requirements, including independence, prior to
performing other significant activities for the current audit period.
3. c.) Ensure adequate professional competence to perform the services required
and maintain client confidentiality during the current audit period, including
securing the work papers.
4. d.) Ensure that we have fulfilled other ethical requirements relevant to our audit.
 AUDIT PROCESS

INITIAL PLANNING OF THE AUDI T ENGAGEMENT

III. Establish the team
1. a.) The understanding of the entity obtained during the client and engagement
acceptance or continuance process, including our expectations about service
requirement, help us establish our audit team and determine team roles and
responsibilities.
2. b.) Determine the nature, timing and extent of resources and establish the audit
team to achieve the appropriate balance of skills, experience and competence
necessary to perform the audit.
3. c.) Make preliminary assessment of additional expertise that is needed beyond
that possessed by the members of the audit team and develop a plan to obtain
the resources. Determine whether to use the expertise of an internal
specialist or an auditor’s external specialist.
 AUDIT PROCESS

INITIAL PLANNING OF THE AUDI T ENGAGEMENT

IV. Determine the roles and responsibilities of team members
1. a.) Establish the roles and responsibilities of team members for preparing and
reviewing audit documentation.
2. b.) Appropriate levels of supervision should be in place so members of the audit
team understand the purpose of the assigned work and less experienced audit
team members receive appropriate support and on-the-job training from more
experienced team members.
3. c.) Conduct timely reviews to determine that the work performed supports the
conclusions reached and is documented appropriately. More experienced team
members, including the partner in charge (PIC) should review the work
performed by less experienced team members.
 AUDIT PROCESS

IDENTIFY AND ASSESS RISKS

The amount of effort to identify and assess risks and determine the audit strategy will
vary with the size and complexity of the client and the auditor’s knowledge of and
experience with the client.

In general terms, the identify and assess risks element involves:

- - Obtain an understanding of the client’s business and industry
- - Understand management’s assessment process
- - Understand components of internal control at the entity level
- - Identify and assess fraud risks
- - Make preliminary judgment about materiality levels
 AUDIT PROCESS

In general terms, the identify and assess risks element involves:

- - Identify significant accounts and disclosures and relevant assertions
- - Identify risks of material misstatement and make inherent risk assessments
- - Design an audit strategy to address identified risks of material misstatement,
including fraud risks
- - Execute discussions and approval of relevant points from the risk assessment
procedure
 AUDIT PROCESS

DESIGN AND EXECUTE RESPONSES TO RISKS

- The primary objective of this audit phase is to design and perform audit procedures
to obtain sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the auditor’s opinion.
- Sufficiency is the measure of the quantity of audit evidence obtained.
Appropriateness is the measure of the quality of audit evidence; that is, its
relevance and its reliability in providing support for the conclusions on which to
base the auditor’s report.
- Obtain audit evidence from substantive procedures or combines with test of
controls, as appropriate.
- In the execution phase, we perform test of controls when we adopt a controls
reliance strategy.
 AUDIT PROCESS

DESIGN AND EXECUTE RESPONSES TO RISKS

- The auditor will test the controls when they plan to rely on the controls over a
significant class of transactions or significant disclosure process or in other
special circumstances. Then identify the controls, understand their design and
determine which are relevant to the audit.
- Tests of controls may be performed either before, or at the balance sheet date.
Professional judgment is required in deciding when to perform it. Testing controls
early may help us identify important matters at an early stage of the audit and
resolve them, with the assistance of management, or address their effects on the audit
by identifying effective mitigating controls to rely on or revising our audit strategy.
 AUDIT PROCESS

DESIGN AND EXECUTE RESPONSES TO RISKS

- Based on the result of test of controls, evaluate the effectiveness of the design and
operations of relevant controls and assess the control risks as either “rely on
controls” or “not rely on controls” for each relevant assertion for each
significant account and disclosure. This assessment, combined with inherent risks
assessment, is the basis for the combined risk assessment for each relevant assertion.
- Design the nature, timing and extent of our substantive procedures to respond to
the Combines Risk Assessment (CRA). Substantive procedures may include
substantive analytical procedure, test of details and or test of items to obtain
information.
- Substantive procedures must be responsive to the assessed CRA.
 AUDIT PROCESS

DESIGN AND EXECUTE RESPONSES TO RISKS

- In addition to the CRA, other factors that may influence the timing of the procedures
include:

i. The company’s reporting deadlines, readiness and the availability of information to

be audited.
ii. Audit team’s reporting deadlines, availability and efficiency factors.
iii. Time needed for the company or other parties to respond to audit requests.
 AUDIT PROCESS

CONCLUDE AND COMMUNICATE

- We aggregate the individual pieces of audit evidence obtained from our audit
procedures for each relevant assertion to enable us to conclude whether we have
obtained sufficient appropriate audit evidence to address the identified risks.
- In addition, we evaluate the effect of accumulated misstatements, perform on overall
analytical review, reassess our risk assessment based on the results from our
procedures and revisit our audit strategy, perform subsequent event procedure
and obtain management’s representation letter.
- Discuss and conclude on the overall financial statements, as well as agree the final
versions of our communications to management and those charged with
governance.
 AUDIT PROCESS

CONCLUDE AND COMMUNICATE

- Prepare the audit report where we express our audit opinion on the client’s
financial statements. The audit report generally is issued when we have obtained
sufficient appropriate audit evidence to form our opinion on the entity’s financial
statement.
- Finally, wrap up the audit by completing the documentation of our audit procedures,
including their review and sign-off and archiving our documentation within the
required timeline.
15 MINUTES
 QUIZ NO.1

What are the phases of audit and discuss

briefly.
 QUIZ NO.2

We assess the result of client and engagement

acceptance and continuance process procedure
including the risk factors at the middle of the audit.

A. A. True
B. B. False
 QUIZ NO.3

1. As part of our risk assessment procedure, we perform

procedures to determine compliance with ethical
requirements, including independence, prior to
performing other significant activities for the current
audit period.

A. True
B. False
 QUIZ NO.4

1. In compliance with ethical requirements, the audit

team should ensure adequate professional
competence to perform the services required and
maintain client confidentiality during the current
audit period, including securing the work papers.

A. True
B. False
 QUIZ NO.5

1. Discuss the audit phase II, which is the identification

and assessment of risks.
 QUIZ NO.6

1. On the initial phase of the audit, team determine the

nature, timing and extent of resources and then establish
the team’s composition to achieve the appropriate balance
of skills, experience and competence necessary to perform
the audit.

1. A. True
2. B. False
 QUIZ NO.7

1. Appropriateness is the measure of the quantity of

audit evidence obtained. Sufficiency is the measure
of the quality of audit evidence.
1. A. True
2. B. False
 QUIZ NO.8

1. What do we mean by the appropriateness of audit

evidence?
 QUIZ NO.9

1. Evaluation of the effect of accumulated

misstatements, performance of overall analytical
review, reassessment of risk assessment based on the
results of procedures is done in which part of the
audit process?
 QUIZ NO.10

1. Explain the relationship of “test of control” to

substantive testing.
 QUIZ NO.11

1. How to get the CRA?

THANK YOU!