Pr 102: ASSURANCE & AUDITING

CONCEPTS & APPLICATION

Chapter 05

Phase II
RISK RESPONSE:
Overall & Further
Audit Procedures
Pr102: ASSURANCE & 2
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE

Chapter 5 Overall Response & Further Audit Procedures

Standards covered: PSA 330, 500, 520
Chapter Topics:
1. The High-Level Process Flow
2. The Types of Response
3. Audit Procedures; Nature of Audit; Selecting the Audit Procedures
that will be Applied
4. Tests of Controls
5. Substantive Tests
6. Summary Discussions of Relevant PSA other topic discussion videos
7. Illustrative Case Study on Risk Assessment and Response
Pr102: ASSURANCE & 3
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 3
High-Level Process
Auditor
Assessed
PHASE I Risks PHASE II
Designing
Accepting & Overall
Continuing Response &
Clients Further Audit
Procedures
PHASE
Develop
Overall Audit
Testing of
III
Strategy
Controls

Develop Working
Detailed Audit Papers Substantive
Plan Audit Audit
Procedures
Evidences
Pr102: ASSURANCE & 4
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 4
High-Level Process – Designing the OR & FAP
AUDITOR
1
Assessed Design an overall
Risks unexpected
response at the material No
FS level misstate Audit risk Yes
ment? Accep-
table?
2 Yes
Design audit procedures 4 No
responsive to the Evaluate whether to
assessed RMM at the update audit plan for 6
assertion level remaining period Update audit plan
and Perform
5 further audit
3 Evaluate audit procedures
Assessed evidences as to
Risks Perform audit appropriateness
procedures and sufficiency
Audit PHASE III
Evidences
Pr102: ASSURANCE & 5
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 4
High-Level Process – Designing the OR & FAP
Pr102: ASSURANCE & 6
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 4
High-Level Process – Designing the OR & FAP
Overall response may include:
1. Emphasizing to the audit team the need to maintain
professional skepticism.
2. Assigning more experienced staff or those with
special skills or using experts.
3. Providing more supervision.
4. Incorporating additional elements of unpredictability in
the selection of further audit procedures to perform.
5. Making general changes to the nature, timing, or
extent of audit procedures.
Pr102: ASSURANCE & 7
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 4
Audit Procedures
 Methods/acts to gather evidence
 NATURE > purpose and type

Test of Controls Inspection

or Observation
Substantive Procedure Inquiry
Confirmation,
Re-calculation,
Nature is of the most Re-performance,
importance or Analytical
Pr102: ASSURANCE & 8
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 4
Audit Procedures
 TIMING > when it is performed, or the period or
date to which the audit evidence applies

at an interim date – may help the Auditor identify

significant matters early on
at end of a period – when RMM is high
after the end of a period – for subsequent events
unannounced or at unpredictable times – esp.
when there fraud is suspected
Pr102: ASSURANCE & 9
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 4
Audit Procedures
 EXTENT > size or quantity to be performed
> increases as RMM increases
determined after considering:
• the materiality,
• the assessed risk, When RMM is high
and Increase the quantity
• the degree of assurance the or obtain more
auditor plans to obtain relevant evidence
Pr102: ASSURANCE & 10
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 4
Audit Procedures
Dual-purpose
test Test of Details or
Test of Controls Balance
Nature & Extent • Inquiry alone not enough
• Includes “system-generated
PERFORM WHEN:
• risks of material misstatement at
transactions” (no trail to docs)
the assertion level expects that the • use of CAATs in IT setting
controls are operating effectively • effectiveness of direct controls
• substantive procedures alone
dependent on indirect controls
cannot provide sufficient
appropriate audit evidence at the • some risk assessment
assertion level procedures provide evidence of
controls operating effectiveness
Pr102: ASSURANCE & 11
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE 4
Audit Procedures
Test of Controls
• Influenced by intended period of
Timing reliance
• If risk is significant (RMM is
high), test the related controls in
the current period
• If changed since last audit, test
in current audit; else, test, at
least once in every 3rd audit
Pr102: ASSURANCE & 12
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE

Audit Procedures
Test of Controls Substantive Tests
Nature, Timing & Extent Nature, Timing & Extent

Test of Details or
Balance
PERFORM TO ASCERTAIN
WHETHER THE PESO
AMOUNT OF AN ACCOUNT Analytical
IS PROPERLY STATED Procedures
Pr102: ASSURANCE & 13
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE

Audit Procedures
Substantive Tests
• If risk is significant (RMM is
Nature & Extent high), include test of details
• External confirmations not a
RELATIONSHIP WITH
requirement
TEST OF CONTROLS:
• Some test only of details, some
Reliance on controls is
analytical, some combination of
inversely proportional to
both
the amount and quality of
• Test of adequacy of FS pres’n
relevant substantive test.
and disclosure included
Pr102: ASSURANCE & 14
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE

Audit Procedures
Substantive Tests • Judgment to perform at an
interim FS date; if so, perform
Timing also at period end
• Judgment to perform
substantive test between
interim FS and period end
• Unexpected misstatements
shall trigger re-evaluation of
assessed risk and the audit plan
for the remaining period
Pr102: ASSURANCE &
AUDITING CONCEPTS &
APPLICATION
PHASE II: RISK RESPONSE

Thank you!
References:
Auditing and Assurance Concepts & Application, 2020-2021
Ed; Ma. Elenita B. Cabrera, Gilbert Anthony B. Cabrera; GIC
Enterprises & Co., Inc.; Manila, Philippines

PSAs 330, 500, 520