EVALUATION AND

REVIEW IN
ACCORDANCE WITH
PSA
What are the PSA involved

PSA 220 (Redrafted) – Quality Control for an Audit of Financial

Statements
PSA 230 (Redrafted) – Audit Documentation
PSA 240 (Redrafted) – The Auditor’s Responsibility to Consider Fraud
in an Audit of Financial Statements
PSA 250 (Redrafted) – Consideration of Laws and Regulations in an
Audit of Financial Statements
PSA 260 (Revised and Redrafted) – Communication with Those
Charged with Governance
PSA 300 (Redrafted) – Planning an Audit of Financial Statements
PSA 315 (Redrafted) – Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and Its Environment
PSA 320 (Revised and Redrafted) – Materiality in Planning and
Performing an Audit
PSA 330 (Redrafted) – The Auditor's Responses to Assessed Risks
What is PSQC 1?
• This Philippine
Standard on Quality
Control (ISQC) deals
with a firm’s
responsibilities for its
system of quality
control for audits and
reviews of financial
statements, and other
assurance and related This Photo by Unknown Author is licensed under CC BY-NC-ND

services
engagements.
Risk of Non-compliance

• Litigation
• Revocation of
Accreditation
• Lost Clients
• Penalties
This Photo by Unknown Author is licensed under CC BY-NC-ND
1. Identifying and assessing risks of material
misstatement through understanding the entity and its
environment

Understand the entity, in order to:

 Identify and assess risks of material

misstatement

 Design and perform audit procedures

 Provide a frame of reference for judgments

What do we need to get an
understanding of?
Industry, regulatory and other external factors

Nature of the entity

Selection, application and reasons for changes of accounting

policies

Objectives, strategies and related business risks

Measurement and review of the entity’s financial performance

Internal control
How do we get this understanding?
Enquiries of management (and others within the entity)

Analytical procedures (on both financial and non-

financial data)

Observation and inspection

Audit team discussion of the susceptibility of the FD to

material misstatement

Prior period knowledge (but should check that it is still

relevant)
Significant risks are those that require
special audit consideration, such as:
Risk of fraud

The degree of subjectivity in the financial

information

Unusual transactions

Significant transactions with a related party

Complexity of the transactions

Documentation requirements
 The discussion among the audit team
concerning the susceptibility of the FS to material
misstatements, including any significant
decisions reached

 Key elements of the understanding gained of

the entity including the elements of the entity and
its control specified in the ISA as mandatory,
the sources of the information gained and the risk
assessment procedures carried out
Documentation requirements
 The identified and assessed risks of
material misstatement

 Significant risks identified and related

controls evaluated

 The overall responses to address the risks

of material misstatement
Documentation requirements
 Nature, extent and timing of further audit
procedures linked to the assessed risks at
the assertion level

 If the auditors have relied on evidence

about effectiveness of controls from
previous audits, conclusions about how
this is appropriate
2. Audit methodologies: risk-based audit
The increased use of risk-based auditing reflects two factors:

1) The growing complexity of the business

environment increases the danger of fraud or
misstatement. Factors such as the developing use
of computerised systems and the growing
internationalisation of business are relevant here.

2) Pressures are increasingly exerted by audit clients

for the
‘Top-down’ approach
also known as the business risk approach

 controls testing is aimed at…

 high level controls

 substantive testing is reduced.
‘Top-down’ approach
‘Top-down’ approach
‘Top-down’ approach
‘Top-down’ approach
‘Top-down’ approach
‘Top-down’ approach
‘Top-down’ approach
Other audit strategies

 Systems audit

 Balance sheet approach

 Transaction cycle approach

 Directional testing
3. Materiality criteria
Materiality guidelines

Starting points for the consideration of materiality:

Value %

Profit before tax 5

Gross profit ½-1
Revenue ½-1
Total assets 1-2
Net assets 2-5
Profit after tax 5-10
Documentation
 Materiality for the FS as a whole

 Materiality for particular balances, classes

of transactions or disclosures

 Performance materiality

 Any revisions to the above

Evaluating material misstatements

ISA 450.5

The auditor shall accumulate

misstatements identified during the
audit, other than those that are clearly
trivial.
Evaluating material misstatements
ISA 450.15

The auditor shall include in the audit documentation:

The amount below which misstatements would be regarded as

clearly trivial

All misstatements accumulated during the audit and whether

they have been corrected

The auditor’s conclusion as to whether uncorrected

misstatements are material, individually or in aggregate, and
the basis for that conclusion
Audit Risk Model

Inherent Control Detection

Risk Risk Risk

Audit Risk
4. Risk: inherent risk
Inherent risk
Inherent risk
Inherent risk
Inherent risk
Inherent risk
Control risk
Control environment encompasses:

 Communication and enforcement of integrity and ethical values

 Commitment to competence

 Participation by TCG

 Management’s philosophy and operating style

 Organisational structure

 Assignment of authority and responsibility

 Human resource policies and practices

Control risk
Entity’s risk assessment processes:

 Operating environment changes

 New personnel

 New or revamped information systems

 Rapid growth
Control risk
Information system

 Identify and record all valid transactions

 Describe on a timely basis the transactions in sufficient detail to

permit proper classification of transactions for financial reporting

 Measure the value of transactions in a manner that permits recording

their proper monetary value in the FS

 Determine the time period in which transactions occurred to permit

recording of transactions in the proper accounting period

 Present properly the transactions and related disclosures in the FS

Control risk
Control activities

• Performance reviews
• Information processing
• Physical controls
• Segregation of duties

Monitoring of controls
Detection risk

• The assessment of inherent and control

risk influence the nature, timing and
extent of substantive procedures required
to reduce detection risk.
Business risk
Relationship between BR and AR:

 Business risk arises in the business operations

 Audit risk is focused on the FS of the business

 Audit risk exists only in relation to an opinion

given by auditors
Risk of material misstatement
Risk of material misstatement
Risk of material misstatement
Professional scepticism
 Fraud

 Accounting estimates

 Going concern

 Related party

 Laws and regulations

5. Analytical procedures
Analytical procedures
Analytical procedures
Analytical procedures
Analytical procedures
Analytical procedures
Placing reliance on the results of
substantive analytical procedures
Placing reliance on the results of substantive
analytical procedures
Placing reliance on the results of substantive
analytical procedures
Practical techniques
 Important accounting ratios (such as
current ratio, acid test ratio, etc)

 Others:

• Examination of related accounts

• Trend analysis
• Reasonableness tests
1. Revision: review procedures and
evaluation of findings
Compliance with accounting regulations

 Information presented in the FS is in accordance

with local/national statutory requirements

 Accounting policies employed are in accordance

with accounting standards, properly disclosed,
consistently applied and appropriate to the entity
Review for consistency and reasonableness

 The auditors should consider whether the FS

are consistent with their knowledge of the entity’s
business and with the results of other audit
procedures, and the manner of disclosure is fair.
Analytical procedures must cover in the
final stage:
 Important accounting ratios
 Related items
 Changes in products and/or customers
 Price and mix changes
 Wages changes
 Variances
 Trends in productions and sales
 Changes in material and labour content of production
 Other statement of profit or loss expenditure
 Variations caused by industry or economic factors
Summarising misstatements
At the end of the audit, some misstatements may
still be outstanding, and the auditors will
summarise these uncorrected misstatements.

Summary of misstatements will list

misstatements from the current year and the
previous year(s). This is to allow such to be
highlighted which are reversals in the previous
years.
Evaluating the effect of misstatements

Auditors should consider whether the cumulative

effect of uncorrected misstatements is material.

The schedule of uncorrected misstatements will be

used by the audit manager and partner to decide
whether the client should be requested to make
adjustments to the FS.
2. Opening balances: audit procedures

• (a) Determining whether prior period’s closing

balances have been correctly brought forward to
the current period or, when appropriate, have
been restated.
Opening balances: audit procedures

• (b) Determining whether the opening balances

reflect the application of appropriate accounting
policies
Opening balances: audit procedures
(c) Perform one or more:

(i) review the predecessor auditor’s working

papers to, where the prior year FS were audited;

(ii) evaluating whether audit procedures

performed in the current period provide evidence
relevant to the opening balances; or

(iii) performing specific audit procedures

Opening balances: specific audit procedures
 Observing current physical inventory count
and reconciling it back to he opening inventory
quantities

 Performing audit on the valuation of the

opening inventory items

 Performing audit procedures on gross

profit and cut-off
Prior period balances audited by a
predecessor auditor
• In all cases where there is new auditor, the audit
report must contain an Other Matter paragraph

Other Matter

The financial statements of JK company for the year ended

31 December 20X0 were audited by another auditor who
expressed a/an _______ opinion on those statements on 31
March 20X1.
Audit conclusion and reporting
Audit conclusion and reporting
3. Revision: comparatives
The auditor’s responsibilities on
corresponding figures
Assess whether:

(a) Accounting policies used are consistent with those of

the current period or appropriate adjustments and/ or
disclosure have been made

(b) Corresponding figure agree with the amounts and

other disclosures presented in the prior period or
appropriate adjustments and/or disclosures have been
made
 Corresponding figures: reporting

In the Basis for Modification, either:

(a) Refer to both the current period’s figures and the corresponding figures in the
description of matter; or
(b) In other cases, explain that such is because of the effects or possible effects of the
unresolved matter
Corresponding figures: reporting
Corresponding figures: reporting
Corresponding figures: Incoming auditors’
additional requirements
State in the Other Matter paragraph that the/the:

(a) FS of the prior period were audited by a predecessor

auditor

(b) type of opinion expressed by the predecessor auditor

and, if the opinion was modified, the reasons therefore

(c) date of that report

(d) if unaudited, state such

 Comparative FS: reporting

• The auditor’s opinion shall refer to each

period for which the FS are presented and
on which an audit opinion is expressed.
Comparative FS: Incoming auditors’
additional requirements
State in the Other Matter paragraph that the/the:

(a) FS of the prior period were audited by a predecessor

auditor

(b) type of opinion expressed by the predecessor auditor

and, if the opinion was modified, the reasons therefore

(c) date of that report unless the predecessor’s auditor’s

report on the prior period FS is reissued with the FS.
4. Revision: other information

• Auditors should always seek to resolve

inconsistencies or misstatements of fact
between financial statements and other
information.
Other information:
 Report by management
 Financial summaries or highlights
 Employment data
 Planned capital expenditure
 Financial ratios
 Banes of officers and directors
 Selected quarterly data
Material inconsistencies:
Material misstatements of fact:

• If, on reading the other information for the

purpose of identifying material
inconsistencies the auditor becomes aware
of an apparent material misstatement of
fact, the auditor shall discuss the matter
with management.
5. Revision: subsequent events
Events after the reporting period:
Events after the reporting period:
Events occurring up to the date of the
auditor’s report:
Events occurring up to the date of the
auditor’s report:
Facts discovered after the date of the
auditor’s report but before the FS are issued
The auditor shall:
 Discuss the matter with management and,
where appropriate, those charged with governance

 Determine whether the FS need amendment

and, if so

 Inquire how management intends to address the

matter in the FS
Facts discovered after the FS are issued
Had it been known to the auditor and may have caused him to
amend the auditor’s report, he shall:

The auditor shall:

 Discuss the matter with management and, where

appropriate, those charged with governance

 Determine whether the FS need amendment and, if so

 Inquire how management intends to address the matter

in the FS
Facts discovered after the FS are issued
Should management revise the FS, the auditor shall:

 Carry out audit procedures necessary in the

circumstances

 Review the steps taken by management to ensure that

anyone in receipt of the previously issued FS together with the
auditor’s report thereon is informed of the situation

 Extend audit procedures to the date of the new auditor’s

report

 Issue a new report on the revised FS

5. Revision: going concern
Events/conditions that may cast significant
doubt about the entity’s going concern:
(a) Financial

(a) Net liabilities or net current liability portion

(b) Fixed-term borrowings approaching maturity without

realistic prospects of renewal or repayment, or excessive
reliance on short-term borrowings to finance long-term
assets

(c) Indications of withdrawal of financial support by lenders

(d) Negative operating cash flows indicated by historical or

prospective financial statements
Events/conditions that may cast significant
doubt about the entity’s going concern:
(a) Financial

(e) Adverse key financial ratios

(f) Substantial operating losses or significant deterioration in

the value of assets used to generate cash flows

(g) Arrears or discontinuance of dividends

(h) Inability to pay creditors on due dates

(i) Inability to comply with the terms of loan agreements

Events/conditions that may cast significant
doubt about the entity’s going concern:
(a) Financial

(j) Change from credit to cash-on-delivery transactions with

suppliers

(k) Inability to obtain financing for essential new product

development or other essential investment

(b) Operating

(a) Management intends to liquidate the entity or to cease

operations

(b) Loss of key management without replacement

Events/conditions that may cast significant
doubt about the entity’s going concern:

Operating

(c) Loss of a major market, key customer(s),

franchise, license or principal supplier(s)

(d) Labour difficulties or shortages of

important supplies

(e) Emergence of a highly successful competitor

Events/conditions that may cast significant
doubt about the entity’s going concern:
(c) Others

(a) Non-compliance with capital or other statutory

requirements

(b) Pending legal or regulatory proceedings against the

entity that may, if successful, result in claims that the entity
is unlikely to be able to satisfy

(c) Changes in law or regulation or government policy

expected to adversely affect the entity

(d) Uninsured or underinsured catastrophes when they

occur
Going concern: evaluating management’s
assessment
• The process management followed to
make its assessment

• The assumptions on which

management’s assessment is based

• Management’s plans for future action

and whether these are feasible in the
circumstances
Going concern: additional audit
procedures:
 Management has not yet made its assessment: request
management to make such

Evaluate management’s plan:

• If outcome of these plans is likely to improve the
situation
• If feasible

 Management has prepared a cash flow forecast:

• Evaluate the reliability
• Assumptions has adequate support
Going concern: additional audit
procedures:

• Availability of additional facts

• Request written representation from

management and, where appropriate, those
charged with governance
Audit conclusions and reporting
• Use of going concern appropriate but a
material uncertainty exists

Unmodified opinion + Emphasis of Matter paragraph:

• Highlight the existence

• Draw attention to the note in the FS that discloses the

matter
Audit conclusions and reporting
Qualified/adverse opinion:

• Adequate disclosure is not made in the FS

• Per auditor’s judgment, preparation under going concern is

inappropriate

Qualified/disclaimer of opinion:

• Inability to obtain sufficient appropriate audit

evidence
Questions?
END
QUALITY ASSURANCE REVIEW IN CONSIDERATION
WITH PSA PROCEDURES
PRESENTED BY: MARCO FERNANDO L. NG
WELCOME – PRESENTATION OBJECTIVES
1. Agenda

2. Ground Rules

3. Introductions
 Managing Partner Direct Tel : 0922-856-0648 / 0917-599-2012
M. Ng & T. Lopez Partnership Firm Tel Landline : 045-322-8033
Angeles City, Pampanga Email :mtpf.marcong@gmail.com

Background Experience

• Marco is the Managing Partner of M. Ng & T. Lopez Partnership Firm, one of

the dynamic accounting and assurance firm in Angeles City. Marco has performed various audit services and fraud investigation namely to the following
industry:
• A recipient of the 2017 PICPA Young Achiever Awards for Public Practice
Importer/Distributor – Managed the forensic audit of a partnership, engage in importing and
• A member of the PICPA Quality Assurance Review team for Public Practice
distribution of animal and pet products, relating to allegation of misappropriation of cash
• A national speaker for PICPA, CICA, CrFA, CIA (under ExelCIA), and other in collections and diversion of partnership funds by the managing partner and employees. The
house training facilitated by PowerMax and Business Essence. project entailed performing procedures to establish the amount involved in the said employee
fraud.
• Marco is one of founders of the Firm which started on November 2013. Prior to
this, he started his career with one of the big 4 firms in the Philippines where he Multinational Company – Managed the independent review of costing methodology and
spent 4 years conducting external audit engagement with Public and Private analysis of costing data of a multinational company based in the Philippines, with export
companies. Then he joined the biggest auditing firm in the Philippines where he business to other countries. The review was made to support a dispute in another country
spent 3 years doing Fraud Investigation and Dispute services for large involving the multinational company. The project entailed procedures in documenting cost
multinational companies and state auditors of the Philippines. And finally he allocation process and gathering information regarding the computation of gross margin and
spent 3 years conducting external and internal audit work in New York and Los earnings before taxes
Angeles California for one Hedge Funds and Private Equity Funds with one of
the largest US firm. Government sector –supervised the development and preparation of a fraud audit manual to
be integrated in the regular audit of Government agencies. These project required review of
Skills and affiliation the current state of fraud auditing within the audit institution, developing and preparing the
fraud audit manual, developing of training materials, and conducting of training programs of
• Marco is Certified Fraud Examiner (CFE), Certified Internal Auditor (CIA), Certified Public
Accountant (CPA) Both in the Philippines and in the US, and a Chartered Global selected state auditors.
Management Accountant.
Health Service - Supervised and helped assist the forensic audit of a private hospital relating
• Marco has maintained his membership with the Association of Certified Fraud Examiner
to allegation of improper of cash collections made by the company’s procurement manager
(ACFE), Institute of Internal Auditors (IIA), American Institute of Accountants (AICPA),
Chartered Institute of Management Accountants (CIMA), and Philippines Institute Certified from external sales agents.
Public Accountants (PICPA).
7 PHASES OF AUDIT
THE AUDIT PROCESS IS DIVIDED INTO SEVEN PHASES

Study and
Pre-Engagement Evaluation of
Audit Planning Substantive Tests
Procedures Client’s Internal
Control System

Completing the Issuance of the Post-audit

Audit Engagement Audit Report responsibilities
PRE-PLANNING AND PLANNING DOCUMENTATION
 WHY PLAN?

This Photo by Unknown Author is licensed under CC BY-SA

 IT’S A VUCA
WORLD

This Photo by Unknown Author is licensed under CC BY-SA-NC

 THE KEY TO
SUCCESS IS
PROPER
STRATEGIC
PLANNING AND
IMPLEMENTATION
This Photo by Unknown Author is licensed under CC BY-SA-NC
 600.7 In evaluating a prospective client, we consider
whether there are professional reasons not to act as auditor
when the independence of the auditor, its partners, managers
and professional staff may be threatened or compromised by
accepting the appointment as auditor.

INDEPENDENCE
600.8 There must be evidence that the engagement
ISSUES partner has formed a conclusion on compliance with
independence requirements including:

• Identifying and evaluating circumstances that create threats to independence.

• Evaluating identified threats.
• Taking action to eliminate threats or reduce them to an acceptable level by
applying safeguards, or declining the appointment.
 600.9 At least annually, the firm shall obtain written
confirmation from its professional staff that they have
complied with the independence requirements.

600.10 In addition to the above considerations,

ANNUAL engagements may need to be declined where:
INDEPENDENCE
• An entity is operating in a specialized industry in which the auditor
DECLARATION lacks the required expertise, and expert assistance is not available.
• An entity operates a significant operation where the auditor is not
represented, and there are no alternative audit procedures that can
be adopted to cover these operations.
• The entity reporting deadlines coincide with existing client pressures.
• An Engagement Quality Control Review is required and no suitably
qualified and objective reviewer is available.
 600.11 A partner, designated as the Engagement Quality
Control Reviewer, is responsible for evaluating the
prospective audit engagement. While retaining overall
responsibility, the evaluating partner may delegate some of
the evaluation procedures. For example, gathering certain
background information may be delegated.
WHO PERFORMS
THE EVALUATION
600.12 The evaluating partner does not delegate
discussions with predecessor auditors and only delegates
enquiries of third parties to another partner.
 600.13In conducting an evaluation of a
prospective client, the evaluating partner or his
designate must:
PROCEDURES consider the engagement risks to be faced in
accepting the audit;
consider whether the Auditor has enough
IN capability and manpower to be able to act as
the principal auditor
make enquiries, as appropriate, from the
EVALUATING A following sources to gather enough
information to arrive at a decision whether to
accept or not an audit engagement:

PROSPECTIVE • within the prospective client or third

parties
• using investigation services

CLIENT • from predecessor auditors;

conclude on acceptance
 600.14The evaluation of the prospective audit
PROCEDURES client must be completed prior to accepting an
appointment as auditor. If the evaluation is not
completed prior to the deadline for submitting a
IN proposal, we include comments in the proposal
stating that it is subject to completion of required
professional enquiries.

EVALUATING A 600.15Before contacting third parties and

collecting information on a prospective client,
take steps to ensure that all partners and staff are
PROSPECTIVE aware of:
• The firm’s policies to protect confidential

CLIENT •
information maintained on clients;
Requirements of any privacy legislation; and

CONT… • Requirements of the applicable code of ethics.

PROCEDURES
IN 600.16 We document the collection of
information, the evaluation process and
the conclusion reached regarding
EVALUATING A acceptance or rejection of the prospective
audit client. An evaluation of prospective
PROSPECTIVE client form should be completed to
document the basis for the conclusion

CLIENT reached. The evaluating partner signs on

the form.

CONT…
 600.17 Out of the existing audit engagements of the auditor,
it is important for the engagement partners to identify for
each audit period which are the clients that need formal re-
evaluation.

600.18 The identification activity focuses on significant

RE-EVALUATION changes in the circumstances of the entity or in the terms or
OF EXISTING conditions of our audit. The following factors may be
considered:
CLIENT
• new legal, regulatory or professional requirements that alter our reporting
responsibilities and the nature, timing, or extent of our audit procedures;
• a significant change in the nature, size, or structure of the entity's business;
• a significant change in principal owners, management or other personnel;
• audit findings which indicate that management may be providing misleading or
incomplete information or there is material weakness in controls and no steps
are being taken to correct the deficiencies.
 600.19In considering continuance of the audit
engagement for identified audit client, the

RE- following needs to be considered:

• updating our understanding of the entity's
business risks and the related audit risks;

EVALUATION • obtaining an acceptable level of confidence

that the entity's management and principal
owners have the integrity to provide us with
OF EXISTING meaningful representations and full disclosure
in connection with our audit;
• considering our ability to address the audit
CLIENT •
risks;
considering the business risk that we face in
continuing with the audit.
CONT…
 600.20 When the engagement partner concludes that the
auditor's relationship with an existing client requires formal
re-evaluation we follow the process for acceptance of
prospective audits, adapting it as necessary.

RE-EVALUATION
OF EXISTING
CLIENT CONT…
600.21 We document the formal re-evaluation process and
conclusions reached. The evaluation needs to describe the
reasons for the formal re-evaluation, the methods used to
conduct the formal re-evaluation and the conclusions reached.
The engagement partner approves the re-evaluation.
ILLUSTRATIVE CLIENT EVALUATION

Exhibit 600 - 2 Prospective Client Eval Form - 2018.pdf

ILLUSTRATIVE INDEPENDENCE CONFIRMATION

Exhibit 600 - 1 Independence Confirmation - 2018.pdf

ILLUSTRATIVE ENGAGEMENT LETTER

Exhibit 600 - 3 Illustrative Engagement Letter - 2018.pdf

AUDIT PLANNING AND STRATEGY –
DOCUMENTATIONS
Objective: This checklist sets out the items required to be considered in developing the audit strategy.

AUDIT STRATEGY
Client Name: Client Code:

Period End : Partner: Manager:

Prepared by: Date:

Subject : Audit Strategy Checklist
Reviewed by: Date:

WP
Factor to Consider Comment
Ref

The financial reporting framework on which

the financial information to be audited has been
prepared, including any need for reconciliations to
another financial reporting framework.

Industry-specific reporting requirements such

as reports mandated by industry regulators.
IDENTIFYING AND ASSESSING RISKS OF MATERIAL
MISSTATEMENT THROUGH UNDERSTANDING THE
ENTITY AND ITS ENVIRONMENT

Understand the entity, in order to:

 Identify and assess risks of material misstatement

 Design and perform audit procedures

 Provide a frame of reference for judgments

WHAT DO WE NEED TO GET AN UNDERSTANDING OF?
 Industry, regulatory and other external factors

 Nature of the entity

 Selection, application and reasons for changes of accounting policies

 Objectives, strategies and related business risks

 Measurement and review of the entity’s financial performance

 Internal control
HOW DO WE GET THIS UNDERSTANDING?
 Enquiries of management (and others within the entity)

 Analytical procedures (on both financial and non-financial data)

 Observation and inspection

 Audit team discussion of the susceptibility of the FD to material

misstatement

 Prior period knowledge (but should check that it is still relevant)

SIGNIFICANT RISKS ARE THOSE THAT REQUIRE SPECIAL
AUDIT CONSIDERATION, SUCH AS:

 Risk of fraud

 The degree of subjectivity in the financial information

 Unusual transactions

 Significant transactions with a related party

 Complexity of the transactions

DOCUMENTATION REQUIREMENTS

 The discussion among the audit team

concerning the susceptibility of the FS to
material misstatements, including any significant
decisions reached

 Key elements of the understanding gained of

the entity including the elements of the entity
and its control specified in the ISA as
mandatory, the sources of the information
gained and the risk assessment procedures
carried out
DOCUMENTATION REQUIREMENTS

 The identified and assessed risks of material misstatement

 Significant risks identified and related controls evaluated

 The overall responses to address the risks of material

misstatement
DOCUMENTATION REQUIREMENTS

 Nature, extent and timing of further audit procedures

linked to the assessed risks at the assertion level

 If the auditors have relied on evidence about

effectiveness of controls from previous audits, conclusions
about how this is appropriate
AUDIT METHODOLOGIES: RISK-BASED AUDIT
The increased use of risk-based auditing reflects two factors:

1) The growing complexity of the business

environment increases the danger of fraud or
misstatement. Factors such as the developing use
of computerised systems and the growing
internationalisation of business are relevant here.

2) Pressures are increasingly exerted by audit clients

for the
‘TOP-DOWN’ APPROACH

also known as the business risk approach

 controls testing is aimed at…

 high level controls

 substantive testing is reduced.
‘TOP-DOWN’ APPROACH
‘TOP-DOWN’ APPROACH
‘TOP-DOWN’ APPROACH
‘TOP-DOWN’ APPROACH
‘TOP-DOWN’ APPROACH
‘TOP-DOWN’ APPROACH
‘TOP-DOWN’ APPROACH
OTHER AUDIT STRATEGIES
 Systems audit

 Balance sheet approach

 Transaction cycle approach

 Directional testing
MATERIALITY CRITERIA
MATERIALITY GUIDELINES

Starting points for the consideration of materiality:

Value %

Profit before tax 5

Gross profit ½-1
Revenue ½-1
Total assets 1-2
Net assets 2-5
Profit after tax 5-10
DOCUMENTATION

 Materiality for the FS as a whole

 Materiality for particular balances, classes of transactions or disclosures

 Performance materiality

 Any revisions to the above

EVALUATING MATERIAL MISSTATEMENTS

ISA 450.5

The auditor shall accumulate

misstatements identified during the
audit, other than those that are clearly
trivial.
EVALUATING MATERIAL MISSTATEMENTS

ISA 450.15
The auditor shall include in the audit documentation:

 The amount below which misstatements would be regarded as clearly trivial

 All misstatements accumulated during the audit and whether they have been
corrected

 The auditor’s conclusion as to whether uncorrected misstatements are

material, individually or in aggregate, and the basis for that conclusion
ILLUSTRATIVE AUDIT STRATEGY CHECKLIST

Illustrative Audit Strategy Checklist.pdf

ILLUSTRATIVE AUDIT PLANNING MEMORANDUM

Illustrative Audit Planning Memorandum.pdf

ILLUSTRATIVE AUDIT UNDERSTANDING MEMO

Illustrative Audit Understanding Memorandum.pdf

ILLUSTRATIVE ANALYTICAL PROCEDURES

Illustrative Analytical Procedure documentation.pdf

SECTION 600 ENGAGEMENT MANAGEMENT –
DOCUMENTATIONS
 600.89 Working papers are records kept by the auditor of the
procedures applied, and the tests performed, the information
obtained and the pertinent conclusions reached. Examples include:
schedules, transcripts, analyses, notes and other memoranda
(including computer files) prepared and accumulated in connection
with an audit.

MANAGING AUDIT
DOCUMENTATION

600.90 Managing the audit working papers is important in providing

evidence that the audit was performed appropriately (in relation to
standards of auditing and other legal requirements)
 600.91 Auditors design working papers
to suit the needs of each audit, taking
account of the auditor’s policies and legal
and professional requirements. Overall
GUIDE IN guidelines in preparing the working papers
are:

PREPARING • use of standard working papers is

recommended
• working papers should be clear and
WORKING •
concise
working papers use professional language

PAPERS • all outstanding points are cleared to

finalize the working papers
• discard review points once cleared.
 600.92 The form and content of
working papers are affected by matters

GUIDE IN such as the:

• Nature of the engagement.
• Nature of the audit procedures to be
PREPARING performed.
• Form of the auditor's report.
• Identified risks of material
WORKING misstatement
• Size and complexity of the entity.
• Condition of the entity's accounting
PAPERS and internal control systems.
• Needs in the particular circumstances
for direction, supervision and review of
CONT… work performed by assistants.
• Audit methodology and tools used.
 600.93 Also, to improve audit efficiency, the auditor
may utilize schedules, analyses and other

GUIDE IN
documentation prepared by the entity. In such
circumstances, the auditor would need to be
satisfied that those materials have been properly
prepared.

PREPARING 600.94 Working papers ordinarily include:

• Information concerning the organizational

WORKING structure of the audit client.

• Extracts or copies of important legal documents,
agreements and minutes.

PAPERS • Information concerning the industry, economic

environment and legislative environment within
which the entity operates.

CONT… • Evidence of the planning process including audit

programs and any changes thereto.
• Evidence of the auditor's understanding of the
accounting and internal control systems.
 • Evidence of control risk assessments and any
revisions thereof.
GUIDE IN • Evidence of the auditor's consideration of the
work of internal auditing and conclusions
reached.
PREPARING • Analyses of transactions and balances.
• Analyses of significant ratios and trends.

WORKING • A record of the nature, timing and extent of

audit procedures performed and the results
of such procedures.

PAPERS • Evidence that the work performed by

assistants was supervised and reviewed.

CONT…
• An indication as to who performed the audit
procedures and when they were performed.
 • Details of procedures applied regarding
components whose financial statements are
audited by another auditor.

GUIDE IN • Copies of communications with other auditors,

experts and other third parties.
Copies of letters or notes concerning audit
PREPARING
•
matters communicated to or discussed with the
entity, including the terms of the engagement
and material weaknesses in internal control.

WORKING • Letters of representation received from the

entity.
• Conclusions reached by the auditor concerning

PAPERS significant aspects of the audit, including how

exceptions and unusual matters, if any, disclosed
by the auditor's procedures were resolved or
treated.
CONT… • Copies of the financial statements and auditor's
report.
 600.95 The Firm shall adopt and use
standard working papers to facilitate the
STANDARD audit supervision and review while
providing a means to control its quality.
The auditors need to consider the factors
AUDIT stated in statement 600.95 when applying
the use of standard working papers.

WORKING While certain portion of the standard

working paper may not be applicable to
certain clients, especially the small and
PAPERS owner-managed clients, the auditor need
not remove such portion but just to
indicate that it is not applicable.
 600.97Audit working papers may be printed or
retained electronically. To determine that
electronic documents are maintained by the one
who is conversant with the contents of the

ELECTRONIC document and that extraneous information is not

being retained, the following guidance applies to
electronic media:

FORMAT • completion of the audit

WORKING
Upon completion of an audit, finalized
documents on disk drives maintained by
the audit team, including support staff, are
moved to either the appropriate file

PAPERS server or to disks for storage with the working

paper files. Additional electronic copies of
entity-related documents are not retained, except
as set forth in this paragraph.
 professional staff
• Following completion of an audit, the professional staff
assigned are in possession of no audit-specific information,
whether on their personal computers, on their support staff's
computers or otherwise.
ELECTRONIC
FORMAT personal computers
WORKING • Annually, all individuals review the information stored on their
personal computers, and their support staff's computers, for
PAPERS CONT… compliance with the retention guidance.
Auditor’s Internet addresses
• Correspondence sent from, or received at, the auditor’s
address is subject to the same policies, including retention
policies, as other correspondence.
 600.98 Well organized working papers facilitate the review of
the audit and provide efficient access to audit evidence
supporting the audit conclusion. Much of audit working papers
apply to either the period under audit or to one period to the
next. As such, working papers may be grouped generally into
WORKING PAPER current files and permanent files, correspondingly.
ORGANIZATION
AND INDEXING 600.99 In the case of recurring audits, some working paper files
may be classified as "permanent" audit files which are updated
with new information of continuing importance, as distinct from
current audit files which contain information relating primarily
to the audit of a single period.
 600.100 Current files contain working papers relating primarily to
the audit of a specific period. Each period's current audit working
papers include all the appropriate information needed to support
the opinion for specific audit.

CURRENT FILES

600.101 These working papers may need to be newly created each

period, or they may be continuous, updating working papers from
the prior period. If information is brought forward, we retain a copy
on the previous audit current file. For example, analytical
procedures, analyses of trends and ratios, calculations of important
accounting estimates.
 600.102 Current working papers file generally
include:
• evidence of our consideration of the work of
internal auditing and conclusions reached;
• details of procedures applied regarding
components whose financial statements are
audited by other auditors;

CURRENT • copies of communications with other auditors,

external experts and other third parties;
• copies of letters or notes concerning audit
matters communicated to or discussed with the

FILES CONT… entity, including the terms of the audit and

material weaknesses;
• analyses of transactions, balances and significant
ratios and trends;
• evidence that work performed was supervised
and reviewed;
• letters of representation received from the
entity.
 600.103 When we issue our audit
opinion we retain a copy of current
CURRENT working papers that support our opinion.
Where these working papers may be
useful for the succeeding period's audit,
FILES CONT… we retain a copy as of the date of our
audit report.We then update the original
during the succeeding period's audit.
 600.104 These continuing use working papers
do not need to be recreated each period. Instead,
we update them, primarily by adding new
information and by discarding information that is no
longer relevant. Permanent files usually consist of
working papers and documents relating to or
containing:
• Information concerning the legal and

PERMANENT organizational structure of the entity.

• Extracts or copies of important legal documents,
agreements and minutes.
• Information concerning the industry, economic
FILES environment and legislative environment within
which the entity operates and any updates
thereto.
• audit programs template as tailored to specific
audit engagement and any changes thereto.
• Evidence of the auditor's understanding of the
accounting and internal control systems and any
changes thereto.
 600.105 To better organize the working
papers and facilitate access to these, it
may be recommended that a separate file
for reports related to an engagement be
maintained. This file may contain the
following:
• Auditor’s report and audited financial
statements
REPORT FILES • Report on the review of internal
control system, if required as part of
the audit
• Management report
• Other reports issued in relation to the
audit engagement
 600.106 All other working papers used
by the audit team that may not be
classified under the above grouping may
OTHER FILES be filed under other files. Most of the
documents included in this file are
engagement administration and
management related files.
 600.107 In order to facilitate the access to and review
of working papers, the auditor implements a standard
working paper indexing system. Such system also
allows common understanding to all members of the
audit team and the audit division staff when locating for
WORKING specific files in the working papers.
PAPERS
INDEXING
600.108 The standard working papers indexing system
recommends the following as the standard index
numbers when indexing working papers.
WORKING PAPERS INDEXING CONT…

Working Paper Title Appendix Ref.

Planning P
Internal Control Evaluation and Risk Assessment ICRA
Trial Balance TB
Working Balance Sheet WBS
Working Profit and Loss WPL
Cash A-10
Receivables A-20
Inventory A-30
WORKING PAPERS INDEXING CONT…

Property, Plant and Equipment A-40

Investments /Financial Assets A-50
Accounts Payable L-10
Accrued Expenses L-20
Income Tax Payable L-30
Notes Payable / Long-Term Liabilities L-40
Shareholders’ Equity E-10
Revenue R-10
Cost of Sales COS-10
Operating Expenses OE-10
Interest Expense IE-10
STANDARD AUDIT WORKING PAPERS CONT…
600.96 The table below lists standard working papers auditors may consider.

Working Paper File/Folder Title Appendix Ref.

Permanent Working Paper File/Folder PWP

Current Working Paper File/Folder CWP
Client Financial Statements File/Folder CFS
Client Income Tax Return File/Folder CITR
Client Letter File CLTR
 Thank you
for your attention