| A4. | The auditor's assessment of the identified risks at the assertion level provides a basis for considering the appropriate audit approach for designing and performing further audit procedures. For example, the auditor may determine that: |
| (a) | Only by performing tests of controls may the auditor achieve an effective response to the assessed risk of material misstatement for a particular assertion; |
| (b) | Performing only substantive procedures is appropriate for particular assertions and, therefore, the auditor excludes the effect of controls from the relevant risk assessment. This may be because the auditor's risk assessment procedures have not identified any effective controls relevant to the assertion, or because testing controls would be inefficient and therefore the auditor does not intend to rely on the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures; or |
| (c) | A combined approach using both tests of controls and substantive procedures is an effective approach. |
| However, as required by paragraph 18, irrespective of the approach selected, the auditor designs and performs substantive procedures for each material class of transactions, account balance, and disclosure. |
| A5. | The nature of an audit procedure refers to its purpose (i.e., test of controls or substantive procedure) and its type (that is, inspection, observation, inquiry, confirmation, recalculation, reperformance, or analytical procedure). The nature of the audit procedures is of most importance in responding to the assessed risks. |
| A6. | Timing of an audit procedure refers to when it is performed, or the period or date to which the audit evidence applies. |
| A7. | Extent of an audit procedure refers to the quantity to be performed, for example, a sample size or the number of observations of a control activity. |
| A8. | Designing and performing further audit procedures whose nature, timing, and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level provides a clear linkage between the auditor's further audit procedures and the risk assessment. |
|
|
Licence and copyright | © 2018, LexisNexis Group a division of Reed Elsevier (UK) Ltd. All rights reserved. |