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  • 8/6/2019 Mary Radford

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    HELPING THE NATION SPEND WISELY

    International AuditingStandards

    Mary Radford

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    HELPING THE NATION SPEND WISELY

    International Auditing Standards

    What we will cover:

    Background

    Key ISAs (UK and Ireland)

    Changes and impact on external audit

    Possible consequences for internal audit

    and risk management

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    Background

    IAASB issues International Standards on

    Auditing On going programme of ISA revision

    EU 8Th

    Directive will require memberstates to adopt ISAs

    Will apply to the audit of all entities

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    Background

    Auditing Practices Board issues ISAs (UK

    & Ireland) Based on IAASB ISAs but include

    additional material

    Will apply to all audits of financialstatements for commencing on or after

    15th December 2004

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    Background

    Heads of public audit agencies have

    formally adopted ISAs (UK and Ireland) INTOSAI has input to IAASB development

    of ISAs

    APB publishes sector specific guidance PN10

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    Key ISAs (UK and I reland)

    The most significant changes are contained in:

    ISA 240 The Auditors Responsibility toConsider Fraud in an Audit of FinancialStatements

    ISA 315 Obtaining an understanding of theEntity and its Environment and assessing theRisks of Material Misstatement

    ISA 330 The Auditors Response toAssessed Risk

    ISA 500 Audit Evidence

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    ISA 240 The Auditors Responsibil ity toConsider Fraud in an Audit of Financial

    Statements.

    The ISA (UK and Ireland) requires the auditor to:

    Discuss fraud risk and incidence with management andthose charged with governance.

    Discuss within the engagement team how the financial

    statements may be susceptible to material misstatementdue to fraud and what audit procedures would be mosteffective.

    Consider whether one or more fraud factors risk factorsare present.

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    HELPING THE NATION SPEND WISELY

    ISA 240 The Auditors Responsibil ity toConsider Fraud in an Audit of Financial

    Statements.The ISA (UK and Ireland) requires the auditor to:

    Perform audit procedures to address the risk ofmanagement override of controls by testing journalentries, reviewing accounting estimates for bias, and

    understanding the business rationale for significanttransactions outside the normal course of business.

    Obtain specific representations from management

    including its assessment of the risk of fraud Implications for money laundering reporting.

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    HELPING THE NATION SPEND WISELY

    ISA 315 Obtaining an Understanding of the Entityand its Environment and Assessing the R isks of

    Material M isstatement

    The auditor should obtain an understanding ofthe entity and its environment, including itsinternal control , sufficient to identify and assess

    the risks of material misstatement of thefinancial statements whether they are due tofraud or error, and sufficient to design and

    perform further audit procedures.

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    ISA (UK and Ireland)315 Obtaining anUnderstanding of the Entity and its Environment

    and Assessing the Risks of Material M isstatement

    The ISA (UK and Ireland) requires the audit teamto:

    Obtain, and document a broad understanding of theentity and its environment, including its processes for

    identifying business risks relevant to financial reportingobjectives and its information systems and internalcontrol.

    Discuss the susceptibility of the entitys financialstatements to material misstatement.

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    ISA (UK and Ireland)330 The Auditor's

    Response to Assessed Risk For each risk of material misstatement assessed

    under ISA (UK and Ireland) 315, the ISArequires a response at two levels:

    The Financial Statement level; and

    The assertion level.

    Audit documentation must link the assessed

    risk to the evidence gathered.

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    HELPING THE NATION SPEND WISELY

    ISA 500 Audit Evidence

    Introduces six new audit assertions.

    ISA 500 places a different emphasis oncertain areas (e.g. disclosure) and auditteams will need to ensure that the audit

    approach covers these areas. However auditors can express the

    assertions differently, provided all are

    covered.

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    Practice Note 10 (Revised)

    Sector specific guidance for the audit of

    public sector entities To be applied by all auditors, not just

    public audit agencies

    Provides guidance on application of ISAsin public sector context, including the

    audit of regularity

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    Possible consequences for Internal

    AuditThe impact of ISAs (UK and Ireland) oninternal audit will vary from client to client.However, there is increased motivation forthe external auditor to liaise with and rely

    on the work of internal audit.Feedback from clients highlights the need

    for the NAO to make maximum use of thework of internal audit.

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    Possible consequences for Internal

    Audit Key areas where external audit may rely

    on the work of internal audit:- Documentation of control environment

    - Review of internal control systems

    - Consideration of the risk of fraud in thecontext of the financial statements

    - Review of entitys own risk assessment

    processes

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    Possible consequences for risk

    management/reporting Focus on controls design and fraud risk

    Input to the assurance build

    Approach to the audit committee/risk

    committee Corporate Governance statements

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    Other Sources of Information

    ICAEW publication Auditing Standards

    All Change!The following websites are also of use:

    WWW.audit2005.com WWW.frc.org.uk/apb

    WWW.ifac.org./iaasb

    http://www.audit2005.com/http://www.frc.org.uk/apbhttp://www.frc.org.uk/apbhttp://www.audit2005.com/
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    International Auditing Standards

    Any questions?