Overall Responses (Ref: Para. 5)Overall Responses (Ref: Para. 5)

Overall Responses (Ref: Para. 5)

1. Overall responses to address the assessed risks of material misstatement at the financial report level may include:

• Emphasising to the audit team the need to maintain professional scepticism.
• Assigning more experienced staff or those with special skills or using experts.
• Changes to the nature, timing and extent of direction and supervision of members of the engagement team and the review of the work performed.
• Incorporating additional elements of unpredictability in the selection of further audit procedures to be performed.
• Changes to the overall audit strategy as required by ASA 300, or planned audit procedures, and may include changes to:
  • The auditor’s determination of performance materiality in accordance with ASA 320.
  • The auditor’s plans to tests the operating effectiveness of controls, and the persuasiveness of audit evidence needed to support the planned reliance on the operating effectiveness of the controls, particularly when deficiencies in the control environment or the entity’s monitoring activities are identified.
  • The nature, timing and extent of substantive procedures. For example, it may be appropriate to perform substantive procedures at or near the date of the financial report when the risk of material misstatement is assessed as higher.

1. The assessment of the risks of material misstatement at the financial report level, and thereby the auditor’s overall responses, is affected by the auditor’s understanding of the control environment. An effective control environment may allow the auditor to have more confidence in internal control and the reliability of audit evidence generated internally within the entity and thus, for example, allow the auditor to conduct some audit procedures at an interim date rather than at the period end. Deficiencies in the control environment, however, have the opposite effect; for example, the auditor may respond to an ineffective control environment by:

• Conducting more audit procedures as of the period end rather than at an interim date.
• Obtaining more extensive audit evidence from substantive procedures.
• Increasing the number of locations to be included in the audit scope.

1. Such considerations, therefore, have a significant bearing on the auditor’s general approach, for example, an emphasis on substantive procedures (substantive approach), or an approach that uses tests of controls as well as substantive procedures (combined approach).