Amendments to ASA 200

Amendments to ASA 200

1. Existing paragraph 7 is amended to read follows:

The ASAs contain objectives, requirements and application and other explanatory material that are designed to support the auditor in obtaining reasonable assurance. The ASAs require that the auditor exercise professional judgement and maintain professional scepticism throughout the planning and performance of the audit and, among other things:

 Identify and assess risks of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, the applicable financial reporting framework and including the entity’s system of internal control.

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1. Existing paragraph 13 is amended to read as follows:

For purposes of the ASAs, the following terms have the meanings attributed below:

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(n) Risk of material misstatement – The risk that the financial report is materially misstated prior to audit. This consists of two components, described as follows at the assertion level: (Ref: Para. A3)

1. Inherent risk – The susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls.
2. Control risk – The risk that a misstatement that could occur in an assertion about a class of transactions, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal controls.

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1. Following existing paragraph A2, and before the heading An audit of a financial report the following sub-heading is inserted:

Risk of Material Misstatement (Ref: Para. 13(n))

1. Following the sub-heading inserted above, the following paragraph A3 is inserted:

For the purposes of the ASAs, a risk of material misstatement exists when there is a reasonable possibility of:

1. A misstatement occurring (i.e., its likelihood); and

2. Being material if it were to occur (i.e., its magnitude).

3. As a result of the insertion of the paragraph above, subsequent paragraphs of this Auditing Standard are re-numbered and references to these paragraphs are updated accordingly.

4. Existing footnote 17 in paragraph A30 is amended to read as follows:

See ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, paragraph 916.

1. Existing paragraph A40 is amended to read as follows:

Inherent risk is influenced by inherent risk factors. higher for some assertions and related classes of transactions, account balances, and disclosures than for others. Depending on the degree to which the inherent risk factors affect the susceptibility to misstatement of an assertion, the level of inherent risk varies on a scale that is referred to as the spectrum of inherent risk. The auditor determines significant classes of transactions, account balances and disclosures, and their relevant assertions, as part of the process of identifying and assessing the risks of material misstatement. For example, it may be higher for complex calculations or for accounts balances consisting of amounts derived from accounting estimates that are subject to significant estimation uncertainty may be identified as significant account balances, and the auditor’s assessment of inherent risk for the related risks at the assertion level may be higher because of the high estimation uncertainty.

1. The following paragraph A42 is inserted following the paragraph above:

External circumstances giving rise to business risks may also influence inherent risk. For example, technological developments might make a particular product obsolete, thereby causing inventory to be more susceptible to overstatement. Factors in the entity and its environment that relate to several or all of the classes of transactions, account balances, or disclosures may also influence the inherent risk related to a specific assertion. Such factors may include, for example, a lack of sufficient working capital to continue operations or a declining industry characterised by a large number of business failures.

1. As a result of the insertion of the paragraph above, subsequent paragraphs of this Auditing Standard are re-numbered and references to these paragraphs are updated accordingly.
2. Existing paragraph A41 is amended to read as follows:

Control risk is a function of the effectiveness of the design, implementation and maintenance of internal controls by management to address identified risks that threaten the achievement of the entity’s objectives relevant to preparation of the entity’s financial report. However, internal control, no matter how well designed and operated, can only reduce, but not eliminate, risks of material misstatement in the financial report, because of the inherent limitations of internal controls. These include, for example, the possibility of human errors or mistakes, or of controls being circumvented by collusion or inappropriate management override. Accordingly, some control risk will always exist. The ASAs provide the conditions under which the auditor is required to, or may choose to, test the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures to be performed.18