Responses to the Assessed Risks of MaterResponses to the Assessed Risks of Material Misstatement Due to Fraud

Responses to the Assessed Risks of Material Misstatement Due to Fraud

Overall Responses

1. In accordance with ASA 330, the auditor shall determine overall responses to address the assessed risks of material misstatement due to fraud at the financial report level.[10] (Ref: Para. A34)
2. In determining overall responses to address the assessed risks of material misstatement due to fraud at the financial report level, the auditor shall:
   1. Assign and supervise personnel taking account of the knowledge, skill and ability of the individuals to be given significant engagement responsibilities and the auditor’s assessment of the risks of material misstatement due to fraud for the engagement; (Ref: Para. A35‑A36)
   2. Evaluate whether the selection and application of accounting policies by the entity, particularly those related to subjective measurements and complex transactions, may be indicative of fraudulent financial reporting resulting from management’s effort to manage earnings; and
   3. Incorporate an element of unpredictability in the selection of the nature, timing and extent of audit procedures. (Ref: Para. A37)

Audit Procedures Responsive to Assessed Risks of Material Misstatement Due to Fraud at the Assertion Level

1. In accordance with ASA 330, the auditor shall design and perform further audit procedures whose nature, timing and extent are responsive to the assessed risks of material misstatement due to fraud at the assertion level.[11] (Ref: Para. A38‑A41)

Audit Procedures Responsive to Risks Related to Management Override of Controls

1. Management is in a unique position to perpetrate fraud because of management’s ability to manipulate accounting records and prepare a fraudulent financial report by overriding controls that otherwise appear to be operating effectively. Although the level of risk of management override of controls will vary from entity to entity, the risk is nevertheless present in all entities. Due to the unpredictable way in which such override could occur, it is a risk of material misstatement due to fraud and thus a significant risk.
2. Irrespective of the auditor’s assessment of the risks of management override of controls, the auditor shall design and perform audit procedures to:
   1. Test the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of the financial report. In designing and performing audit procedures for such tests, the auditor shall:
      1. Make enquiries of individuals involved in the financial reporting process about inappropriate or unusual activity relating to the processing of journal entries and other adjustments;