CLASS SIX – SUMMARY
CAS 200: Overall Objectives of the independent auditory and the conduct of an
•The sufficiency and appropriateness of audit evidence is a matter of professional
•Audit risk is a function of material misstatements & detection risk.
•Material misstatements occurs at two levels:
oFinancial statement level AND
oTransactions, account balances, and disclosures – these kinds of
misstatements usually occur because of control risks or inherent risks.
An example of inherent risk could be a complex calculation that is
derived from estimates.
Controls risks pertain to the company’s internal control system.
•Detection risk is at the disposal of the auditor. Detection risk can only be reduced,
•Matters that assist the audit procedure in minimize detection risk include:
oProper assignment of personnel
oSupervision and review of all the work
•Audit risk can never be zero due to the inherent limitations of an audit which arise
oNature of financial reporting
Accounts that require management decisions
oNature of audit procedures
Management may not provide information (intentionally or
oTime and cost constraints of an audit.
Relevance of information tends to diminish over time which is why the
audit has to be conducted in a timely manner.
The auditor must:
•Plan the audit so it is performed in an effective manner.
•Direct audit efforts to areas with significant risk.
•Use appropriate testing.
Non-compliance with rules and regulations
CAS 320: Materiality in Planning and Performing an Audit
•Judgements about materiality can be based on size OR the nature of the
•A judgement regarding materiality is based on common users of the financial
statements and not on specific individual users.
•The concept of materiality is applied while performing and planning the audit.
•Usually a quantitative bench mark is used for materiality.
oEx. 5% before taxes of continuing operations for a profit-oriented entity
whereas 1% of total revenues or total expenses may be used for a non-profit
CAS 500: Audit Evidence
•Sources for Audit Evidence
oBy performing tests
oEvidence from an independent source is considered to provide more
oRisk Assessment procedures AND
oAudit procedures that may test controls and account balances
•Looking at records or documents (internal and external)
•A very good tool to use to confirm the existence of an intangible
asset or inventory.
•Involves looking at how the company performs a procedure or
process (inventory count).
•This is a limited test because the quality of the procedure
performed by the company personnel maybe affected by the
fact that he/she is being observed.
•A test generally used to confirm balances for accounts payable
or accounts receivable.