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audit risk- The company’s financial accountant was taken ill suddenly in May 20X5
response- Discuss with management the technical competency and experience of the temporary financial accountant. In addition, the audit engagement team should ensure that increased substantive procedures are undertaken on the material areas of the financial statements to reduce audit risk, particularly those requiring judgment.this is the response given in kit.in exam should i write this whole response or onlt the first point of discuss with management is enough?
2.risk – The year?end financial statements have to be prepared by the end of September 20X5 in order to secure bank finance and management wish to report strong results
response- The audit engagement team should maintain professional scepticism throughout the course of the audit.
Detailed cut?off testing on areas such as revenue, inventory and payables should be performed to ensure that cut?off has been correctly applied and substantive procedures performed on estimates and judgments to ensure accuracyhere only the first point that is to maintain proofessional sceptism is enough to score full marks or i sjould write all the points?
Bear in mind that published answers are more than 100 marks worth – not even the prize-winning candidates will produce answers like these. So you would nevery have to make “all points” for full marks.
“response” in this context is to the “assessed risk” – the “doing” parts of the responses (“increased substantive procedures …”, “detailed cut-off testing …”) certainly get 1 mark each.
Personally, I think “discuss with management” is more part of the assessment of the risk, rather than a response to “assessed risk” – but if it is sufficiently specific (so the relevance of what is to be discussed is clear), then that would also get 1 mark. But if every response were only “Discuss …” I suggest marks would be capped.
I think any “overall” response (like “The audit engagement team should maintain professional scepticism throughout the course of the audit.”) will only get 1 mark once – and where it is specifically relevant – as here (because the risk is at the FS level – not the assertion level).
“identiying and assessing” is ISA 315 – “responses” is ISA 330
To identify a risk is to say that one or more amounts in the FS could be overstated or understated (or misstated where it could genuinely go either way), or that a required disclosure is omitted from the notes, etc.
To assess it, is to consider likelihood/magnitude/significance/impact, etc.
So if there is a risk but it is immaterial, say, it doesn’t require a response as in “further action”.
The higher an assessed risk, the more audit evidence is likely to be required.
I recommend you download our notes https://opentuition.com/acca/aa – the contents page has quick links to chapters and the pdf is searchable.
The distinction between FS level and assertion level is fundamental to risk assessment and the implications for further audit procedures – see top of page 53 and page 59.
The concept of assertions is introduced on page 64 and detailed in Chapter 16.
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