9/11/2021
Right Words, Bright Future
LEARN TO BECOME AN AUDIT ASSISTANT
Knowledge area: Auditing Part
0
Course materials
Sources
Topics
Assurance
and Audit
1. Assurance types
Course
materials
Pre-session
activities
2. Risk, assertions and
materiality
3. Test of controls
4. Substantive tests
5. Review and
finalisation
6. Audit opinion
7. Professional ethics
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Course requirements – 7 NO -LAISHIN
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Lateness - NO
Shyness - NO
Absenteeism or early session leaving – NO
Incomplete pre-session activities - NO
Incomplete homework - NO
Homework submission after 14:00 of the following
session date - NO
 No questions while not understanding - NO
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Other course information
 Answer in either English or Vietnamese
 Send your complete homework to the email
address: tungnguyen@kle.edu.vn
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S1-Topics
1. Concept of external audit
1. Purpose of audit of the financial statements
2. Overall objectives of auditors
3. Components of assurance engagements
2. Types of assurance services
1. Audit engagement
2. Review engagement
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C1 - The purpose of external audit
What is an external audit engagement?
An external audit engagement is a type of assurance
engagement carried out by an auditor to give an independent
opinion on a set of financial statements.
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Statutory audit
 What are the companies whose annual financial
statements are required to be audited by external
auditors in Vietnam?
1. Doanh nghiệp có vốn đầu tư nước ngoài;
2. Tổ chức tín dụng được thành lập và hoạt động
theo Luật các tổ chức tín dụng;
3. Tổ chức tài chính, doanh nghiệp kinh doanh bảo
hiểm, doanh nghiệp môi giới bảo hiểm.
4. Công ty đại chúng, tổ chức phát hành và tổ chức
kinh doanh chứng khoán.
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C1 - The purpose of external audit
What is the objective of an external audit engagement from
perspective of an auditing firm?
The objective of an external audit of financial statements is
to enable 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.
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C1 - Assurance engagement
'An assurance engagement is an engagement in which
practitioner aims to obtain sufficient appropriate evidence in
order to expresses a conclusion designed to enhance the
degree of confidence of the intended users other than the
responsible party about the subject matter information (that
is, the outcome of the measurement or evaluation of an
underlying subject matter against criteria)'.
[International Framework for Assurance Engagements]
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C1 – Audited financial statements
Question to consider
Findings
Parties relating to AFS
Maters to be evaluated or mesured
Criteria applied to AFS
Auditor base
Auditor opinion
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C1 - C-R-E-S-T
There are 5 elements to an assurance engagement:
• Three party relationship (intended user, responsible party,
practitioner)
• Subject matter
• Criteria – suitable criteria
• Evidence
• Report – an assurance report
Use the mnemonic CREST to remember the five elements of
an assurance engagement!
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C1 - Types of assurance services
What does “assurance” mean in context of an assurance
engagement?
Assurance refers to the practitioner's satisfaction as to the
reliability of the __________________ made by one party for use
by another party.
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C1 - Types of assurance services
Examples of assurance services:
• Annual external audit of FS
• Review engagements
− Half-year review of FS;
− Review of effectiveness of IT systems; and
− Review of compliance with corporate governance
requirements.
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C1 - Assurance and reports
The auditors' report on company financial statements is
expressed in terms of truth and fairness. This is generally
taken to mean that financial statements:
– Are factual; and
– Are free from bias and reflect the commercial substance of
the business's transactions.
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C1 - Types of assurance services
Reasonable assurance
e.g. external audit
Positive expression:
'In our opinion, the financial
statements present fairly …..'
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C1 - Types of assurance services
Limited assurance
e.g. review engagement
Negative expression:
‘Based on our review, nothing has come to
our attention that causes us to believe that
the financial statements do not give a true
and fair view …….'
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Overall objectives of the auditor
ISA 200 - Overall objectives of the independent auditor and the
conduct of an audit of financial statements in accordance with ISAs:
“…
− To obtain __________________ about whether the
financial
statements
as
a
whole
are________________________________ , whether due to
fraud or error, thereby enabling the auditor to express
an opinion on whether the financial statements are
prepared, ____________________________ , in accordance
with the applicable financial reporting framework; and
− To report on the financial statements, and
communicates as required by the ISAs, in accordance
with the auditor’s findings.”
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Audit approach
 Risk-based approach: auditors analyse the risks
associated with the client's business, transactions and
systems which could lead to misstatements in FS, and
direct their testing to risky areas to auditing - Required by
ISAs.
 Procedural approach: the auditor would perform a set of
standard tests regardless of the client and its business.
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An typical audit workflow
 Discuss about an typical audit workflow – EG2
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An audit in accordance with ISAs
Auditors are required to carry out the audit with:
• an attitude of professional skepticism;
• exercise professional judgment; and
 Auditors
are
required
comply
with
ethical
requirements
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Professional scepticism
Professional skepticism is an ___________ that includes a
questioning mind, being alert to conditions which may
indicate possible misstatement due to error or fraud, and a
critical assessment of audit evidence.
This requires the auditor to be alert to:
1
2
• Audit evidence that contradicts other audit evidence obtained
• Information that brings into question the reliability of
documents and responses to inquiries to be used as audit
evidence
• Conditions that may indicate possible fraud
• Circumstances that suggest the need for audit procedures in
addition to those required by ISAs
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Professional judgement
Professional judgment is the ___________________________
______________________________________ in making informed
decisions about the courses of action that are appropriate
in the circumstances of the audit engagement.
Professional judgment is required in the following areas:
• Materiality and assessment of audit risk
• Nature, timing and extent of audit procedures
• Evaluation of whether sufficient appropriate audit evidence
has been obtained
• Evaluating management’s judgments in applying the
applicable financial reporting framework
• Drawing conclusions based on the audit evidence obtained
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C5 - Internal audit function
• A function of an entity that performs ___________
and _________________ activities designed to evaluate
and improve the _______________ of the entity’s
governance, risk management and internal control
processes.
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C5 - Internal audit vs External audit
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C5 - Internal audit vs External audit
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S1-Assignment
1. Financial statement assertions
C8
2. Materiality, Performance Materiality
C6
3. HW1_Assurance
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Thank You !
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S2-Topics
1. Financial statement assertions
C8
2. Materiality, Performance Materiality
C6
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What is a misstatement?

A ______________ between the amount, classification,
presentation, or disclosure of a reported financial
statement item and the _________________________
______________________________ that is required for the
item to be in accordance with the applicable financial
reporting framework.

Misstatements can arise _________________________.
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C8 - Financial statement assertions
• Financial statement assertions are the _____________________
by management, explicit or otherwise, that are embodied in
the financial statements, as used by the auditor to consider
the ________________________________________ that may occur.
• Audit tests are designed to obtain evidence about the
financial statement assertions. Assertions relate to
1.
2.
Classes________________________________________________________, and
___________________________________________________________________.
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C8 - Financial statement assertions
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C8 - Financial statement assertions
O
C
A
C
C
P
E
C
A
RO
C
P
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Materiality for FSs as a whole
ISA 320 – Materiality in planning and performing an
audit
 Materiality - Misstatements, including omissions,
are considered to be material if they, individually
or in the aggregate, could reasonably be expected to
________________________________________ of users
taken on the basis of the financial statements;
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Materiality for FSs as a whole
ISA 320 – Materiality in planning and performing an
audit
 Judgments about materiality are made in light of
surrounding circumstances, and are affected by the
size or nature of a misstatement, or a combination
of both; and
 Judgments about matters that are material to users
of the financial statements are based on a
consideration of the common financial information
needs of users as a group.
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Determining materiality
 Benchmark for Overall materiality (Materiality for
FSs as a whole):
– Elements of the financial statements (e.g. assets, liabilities,
equity, revenue, expenses)
– Users’ focus
– Nature of the entity, industry and economic environment
– Entity’s ownership structure and financing
– Relative volatility of the benchmark
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Determining materiality
• What impact does M
have on the items and
number of items to be
tested?
• The materiality level will impact on the auditor's decisions
relating to:
– _______________ items to examine
– ___________ items to examine
– _____________________sampling techniques
– what level of misstatement is likely to result in a modified
audit opinion
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Performance materiality
 Performance materiality is the amount or amounts set by
the auditor __________________________________ for the
financial statements as a whole to reduce to an appropriately
low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds materiality for the
financial statements as a whole.
 Performance materiality also refers to the amount or
amounts set by the auditor at less than the materiality level
or levels for particular classes of transactions, account
balances or disclosures.
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Performance materiality
 Determining performance materiality is very much
dependent on the auditor's professional judgment.
In summary, it is affected by:
• The nature and extent of ___________________ identified
___________________
• The auditor’s ________________________________
• Result of _____________________________________
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Revision to Materiality
 We shall revise materiality for the financial statements
as a whole (and, if applicable, the lower significant
account/disclosure materiality) in the event of
becoming aware of information during the audit that
would have caused us to have determined a different
amount (or amounts) initially.
 If we conclude that a lower materiality for the financial
statements as a whole, we shall determine whether it is
necessary to revise performance materiality, and
whether the nature, timing and extent of the further
audit procedures remain appropriate
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Documentation of Materiality
ISA 320 requires the following to be documented:
 Materiality for the financial statements as a whole
 Materiality level or levels for particular classes of
transactions, account balances or disclosures if applicable
 Performance materiality
 Any revision of the above as the audit progresses
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Audit risk
 (______________) Audit risk is the risk that the auditor
expresses an __________________________________ when
the financial statements are materially misstated.
 What makes a risk an (individual) audit risk is the
link to the financial statements.
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OVERALL AUDIT RISK
AUDIT RISK MODEL
Overall audit risk
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Overall audit risk
 Inherent risk is the susceptibility of an assertion to a
misstatement that could be material individually or
when aggregated with other misstatements, before
consideration of any internal controls.
 Control risk is the risk that a misstatement that could
occur in an assertion and that could be material,
individually or when aggregated with other
misstatements, will not be prevented or detected and
corrected on a timely basis by the entity’s internal
control.
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Overall audit risk
 Detection risk is the risk that the procedures
performed by the auditor to reduce audit risk to an
acceptably low level will not detect a misstatement
that exists and that could be material, individually or
when aggregated with other misstatements.
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Overall audit risk and scope of work
Standard
OAR
OAR
Moderate
High
IR
Moderate
CR
Moderate
DR
Moderate
IR
CR
Low
High
High
High
Low
Relationship
SoW
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S2-Assignment
1. Planning an audit of financial statements
C7
2. Understanding the entity and its environment
C9
3. HW2
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HW 2
1. Provide one example for each of FIVE assertions in
relation to the audit of PPE by using the below two
column table.
Description
Assertion
For example:
PPE has not been depreciated during the
period under audit
Valuation and
allocation
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S3-Topics
1. Assessment of risk of material misstatements
C9
1. Understanding the entity and its environment
2. Internal control systems
3. Recording of accounting and control systems
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Benefits of audit planning – C7
An __________________________ audit relies on proper
planning procedures. The planning process is covered
in general terms by ISA 300 Planning an audit of
financial statements which states that the auditor
shall plan the audit so that the engagement is
performed in an effective manner.
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Structured approach to planning – C7
Step 1 Ensuring
that ethical requirements are met,
including independence
Step 2 Ensuring the terms of the engagement are
understood
Step 3 Establishing the overall audit strategy that sets
___________________________________ of the audit and
guides the development of the audit plan
Step 4 Developing an audit plan that includes the
___________________________________ of planned risk
assessment procedures and further audit procedures
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Overall audit risk
OVERALL AUDIT RISK
 How shall an auditor monitor overall audit risk?
Detection Risk
Control Risk
Inherent Risk
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Assessing Risk of material misstatements
 When the auditor has obtained an understanding of the
entity, (s)he shall assess the _______________________
_________________ in the financial statements, also
identifying significant risks
 It requires the auditor to take the following steps:
1.
Identify risks throughout the process of obtaining an
understanding of ________________________________________;
2. Assess the identified risks and evaluate whether they relate
more pervasively to the financial statements as a whole;
3. Relate the risks to what can go wrong at the assertion level;
and
4. Consider the likelihood of the risks causing a material
misstatement.
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C7- Risk assessment procedures
 The risk assessment procedures, ISA 315, shall
include the following:
1. Inquiries of management, and of others within the entity
who in the auditor’s judgment may have information
that is likely to assist in identifying risks of material
misstatement due to fraud or error. (Ref: Para. A6)
2. Analytical procedures. (Ref: Para. A7–A10)
3. Observation and inspection. (Ref: Para. A11)
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Significant risks
 A significant risk is an identified and assessed ______________
___________________________ that, in the auditor’s judgment,
requires special audit consideration.
 Significant risks are _______________________ transactions that
may indicate fraud, or other special risks.
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Significant risks
 Factors that a risk might be significant:
• Risk of fraud
• Its relationship with recent economic, accounting or
other developments
• The degree of subjectivity in the financial information
• It is an unusual transaction
• It is a significant transaction with a related party
• The complexity of the transaction
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Understanding the entity and its environment
Why?
- To identify and
assess RoMM
- To design and
perform further
audit procedures
What?
How?
- External factors,
including the applicable
financial reporting
Framework - PEST
– Nature of the entity,
including operations,
ownership and
governance, investments,
structure and financing
– Accounting policies
– Objectives and strategies
– Financial performance KPIs
– Internal control
– Inquiries
– Analytical procedures
– Observation and
inspection
– Prior period
knowledge
– Client acceptance or
continuance process
– Discussion by the
audit team
– Information from
other engagements
undertaken for the
entity
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Understanding the entity and its environment
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C9 - Internal control
 The process designed, implemented and maintained by
those charged with governance, management, and other
personnel to provide reasonable assurance about the
achievement of the entity's objectives with regard to:
financial reporting
E&E of operations
compliance with laws/regulations
 Why an auditor needs to obtain an understanding of
internal control?
• Assist in identifying potential misstatements and factors that affect
RoMM
• Assist in designing the nature, timing and extent of further audit
procedures
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C9 - 5 elements of internal control system





Control environment
Entity's risk assessment prOcess
Monitoring of controls
Information system relevant to financial reporting
Control activities
COMIC
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C9 - Control environment – elements to obtain
an understanding
 Communication and enforcement of integrity and ethical
values
 Commitment to competence
 Participation by those charged with governance
 Management's philosophy and operating style
 Assignment of authority and responsibility
 Organisational structure
 Human resource policies and practices
Inquiry + Observation + Inspection
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C9 - Risk assessment process
 Identifying business risks relevant to financial
reporting objectives
 Estimating the significance of the risks
 Assessing the likelihood of their occurrence
 Deciding upon actions to address those risks
Questionnaires + Enquiries
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C9 - Information system relevant to financial
reporting
The information system ________________ to financial reporting
is a component of internal control that includes:
 Financial reporting system
 Procedures and records established to ___________________
____________________________ entity transactions
 Procedures and records to maintain ____________________ for
the related assets, liabilities and equity.
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C9 - Control activities
Definition:
Control activities are those policies and procedures
that help ensure that management directives are
carried out.
Examples of control activities:
1.
2.
3.
4.
Segregation of duties
Management review
Authorization
Physical controls
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C9 - Monitoring of controls
 Monitoring of controls is ______________________________
_____________________of internal control performance over
time. It includes assessing the _____________________________
of controls on a timely basis and taking necessary corrective
actions modified for changes in conditions.
 Monitoring of controls is often carried out by the internal
audit function of a entity.
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C9 - Limitations of accounting and
control systems




The costs of control outweighing their benefits
The potential for _______________
____________________ between employees
The possibility of controls being _____________ or
_________________ by management
 Controls being designed to cope with routine and
not non-routine transactions
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C9 - Recording accounting and control systems




Narrative notes
Questionnaires
Flowcharts
Checklists
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S3-Assignment
I.
Responses to the assessed risk of material misstatements
C6
1. Substantive analytical procedures and test of details
C8
2. Test of controls
C6
II. Fraud versus Error
C6
III.Evaluation of internal control components
C9
IV.HW3_Audit risk
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Thank You !
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S4-Topics
I.
Responses to the assessed risk of material misstatements
C6
1. Substantive analytical procedures and test of details
C8
2. Test of controls
C6
II. Fraud versus Error
C6
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Revision question for M, A and RoMM
 How does materiality impact on an audit of
financial statements?
 Which assertion can a misstatement in fixed assets
belong to? Provide example to illustrate your
answer
 Which areas of entity and its environment shall an
auditor obtain an understand of ? Explain how the
obtained understanding impact on the auditor’s risk
assessment by providing one example.
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Responses to risk assessment
 The auditor shall formulate an approach to the
assessed risks of material misstatement.
• _____________________: emphasis of professional
skepticism, involvement of experienced staffs, level of
supervision, incorporation of unpredictability into audit
procedures etc.
• Reponses to the risk of material misstatement at
assertion level:
1. Test control and substantive test; or
2. Substantive tests only
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Documentation of risk assessment
Auditors must ensure they have documented the
work done at the risk assessment stage, such as:
 Discussion among the audit team of the
susceptibility of the financial statements to
material misstatements
 Significant risks and overall responses.
Work not documented is work legally not done!
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Responses to risk assessment
Test of
details
Substantive
analytical
Use of
Computers
Inquiry, Observation, Inspection, Reperformance, Re-calculation and
Confirmation
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Reasonableness
test, ratio and
trend analysis
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Responses to risk assessment
 Substantive procedures are audit procedures
designed to_________________________________________
__________________. They consist of tests of details
(of classes of transactions, account balances and
disclosures) and substantive analytical procedures.
 The auditor shall always carry out substantive
procedures on material items.
 They consist of _____________________ (of classes of
transactions, account balances and disclosures) and
____________________________________
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Responses to risk assessment
 Tests of controls are audit procedures designed to
_________________________________________________ in
preventing, or detecting and correcting, material
misstatements at the assertion level.
 Test of controls are performed when:
• Auditors expect that controls are operating effectively;
or
• It will not be possible to obtain sufficient appropriate
audit evidence simply from substantive procedures
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C9 - Evaluation of control components
Confirming understanding
(_____________________ test)
Tests of control:______________________
Revision of Risk assessment,
audit strategy and audit plan
Communication of deficiencies in
internal control – in writing to TCWG
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C9 - Control not effective?
Control adequately designed/ operating
efficiently?
Compensating
controls?
Increase substantive
procedures
Prepare a
management letter
Significant
deficiency?
Deficiency:
- No necessary control
- Failure of designed
control
A significant deficiency:
A deficiency to merit
the attention of TCWG
Report to management and
those charged with
governance
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C8 - Audit procedures – test of details
 Inquiry
• Inquiry consists of _______________________________ of
knowledgeable persons, both financial and non-financial,
within the entity or outside the entity - Inquiries may
range from formal written inquiries to informal oral
inquiries.
 Observation
• Observation ________________________ at a process or
procedure ______________________________________
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C8 - Audit procedures – test of details
 Inspection
• Inspection _________________________ records or
documents, whether internal or external, in paper form,
electronic form, or other media, or a ___________________
of an asset
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C8 - Audit procedures – test of details
 Re-calculation
• Recalculation consists of ________________________________
__________ of documents or records. Recalculation may
be performed manually or electronically
 Re-performance
• Re-performance involves the auditor’s independent
execution of procedures or controls that were originally
performed as part of the entity’s internal control
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C8 - Audit procedures – test of details
 Confirmation
• An external confirmation represents audit evidence
obtained by the auditor as _______________________________
to the auditor from a third party (the __________________),
in paper form, or by electronic or other medium
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C8 – Substantive Analytical procedures
 Analytical procedures
− Analytical procedures consist of ______________________
of financial information through analysis of plausible
relationships among both financial and non-financial
data. Analytical procedures also encompass
_____________________ of identified _________________ or
______________________:
1. that are inconsistent with other relevant
information; or
2. that differ from expected values by a significant
amount.
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C8 - Types of analytical procedures
 Ratio analysis - liquidity/solvency, profitability,
operation
 Trend analysis
 Reasonableness test
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C11 - Analytical procedures
 Suitability of analytical procedures - to large
volumes of transactions that tend to be predictable
over time.
 Reliability of data – depends on _______________
_____________, comparability of information
available, ______
of the information
available and _____________________________________
_________________ to ensure its completeness,
accuracy and validity.
1
2
3
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C11 - Analytical procedures
 Evaluation of whether the expectation is
sufficiently precise.
 Acceptable differences -depends on materiality and
consistency with the desired level of assurance.
 Investigating the results of analytical procedures
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Reasonableness test – Depreciation exps_EG3
 Hand out the working papers prepared when
performing the reasonableness test on depreciation
expenses
 Require S to read at home
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91
91
Right Words, Bright Future
C11 Substantive
procedures
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How a misstatement can occur?

Misstatements can occur _________________________.
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Fraud
vs
 Fraud is an ______________ act
by one or more individuals
among management, those
charged with governance,
employees or third parties
involving the use of
____________ to obtain an
unjust or illegal advantage.
 Fraud may be perpetrated by
an individual, or colluded in,
with people internal or
external to the business.
Error
 A material
misstatement caused
________________ , for
example, in the
misapplication of an
accounting policy.
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Types of fraud
 Fraudulent financial reporting involves intentional
misstatements, including omissions of amounts or
disclosures in financial statements, to deceive financial
statement users.
 Misappropriation of assets involves the theft of an
entity's assets and is often perpetrated by employees in
relatively small and immaterial amounts. However, it
can also involve management who are usually more
capable of disguising or concealing misappropriations
in ways that are difficult to detect.
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Audit responses to fraud risk
 Assign and supervise staff responsible taking into account
their knowledge, skill and ability.
 Evaluate whether the accounting policies may be indicative
of fraudulent financial reporting.
 Incorporate unpredictability in the selection of the nature,
timing and extent of audit procedures.
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S4-Assignment
1.
2.
3.
The sales system
The purchases system
HW4
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