An Introduction to Risk Based Auditing

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Presentation transcript:

An Introduction to Risk Based Auditing Stuart Hartley FCA FocusROI Inc shartley@focusroi.com

The Audit Objective (ISA/CAS 200) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework;

The Audit Process - in 3 steps Risk assessment – What can go wrong? Perform risk assessment procedures to identify and assess the risks of material misstatement in the financial statements. Risk Response – Did it go wrong? Perform further procedures to respond to the assessed risks and determine if material misstatements have occurred. Reporting. – Opinion What is the appropriate wording of the audit opinion based on the work performed?

Basic Audit Requirements ISA/CAS 200 Comply with relevant ethical requirements, Plan and perform an audit with professional skepticism Exercise professional judgment in planning and performing an audit Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level Comply with all CASs relevant to the audit

An audit in 14 Steps

Scope of Risk/Control Assessment

Pervasive vs Transactional The foundation

Scope of Risk/Control Assessment – Consider using the 3 risk/control Categories Entity Specific Pervasive Transactional C-PEM Form 520/522 C-PEM Form 530 C-PEM Form 540 - 560

Identifying and Assessing Risk Document Results Assess RMM Copyright FocusROI 2013

F/S Level Assertion Level Pervasive risks/controls Transactional (account balance) Transactions Entity Specific Use of Professional Judgment to assess RMM Categories of Risk and Control Note that the entity specific risks could be either a pervasive or transactional. Use the following example: by not having any financial expertise on an audit committee, there would be a pervasive risk that would factor into the assessment of risk at the financial statement level. A concern as to the valuation of inventory at year end would be a transactional risk that would factor into the assessment of risk at the assertion level. Note that the assessment of risks is always a matter for professional judgment. Risk Assessments

Risk Response

Reporting Review the three major elements involved in the reporting phase.

CPEM 2014 The Canadian Professional Engagement Manual A practical approach to auditing The Canadian Professional Engagement Manual Published by CPA Canada http://www.castore.ca/product/canadian-professional-engagement-manual- members/5

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