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Dear Tutor,
In Auditor’s response to Audit Risk, it is correct to request management to apply the correct accounting treatment if we as auditors think it to be wrong.
Thank you.
That isn’t what we mean by “auditor’s response to an assessed risk”. If there’s a risk of misstatement because the treatment is wrong and the auditor advises management to correct it – that particular risk is, presumably, eliminated.
“Response” in the context of ISA 330 means, for example, designing and performing further audit procedures (e.g. substantive procedures) whose nature, timing and extent are based on and responsive to the assessed risks of misstatement.
If management refuses to comply with IFRS requirements on a matter that is material – no amount of “response” (in the context of ISA 330) can reduce the risk of misstatement (!)
Dear Tutor,
In many Audit risk and response questions in Kaplan Revision Kit. The suggested answer has used this approach i.e Requesting management to apply/follow correct accounting treatment when it is currently wrong.
I would really appreciate if you may clear this confusion.
In the absence of any context for your initial query I replied in terms of ISA 330 – the key word in that response is “assessed”.
Because scenarios in exam questions are necessarily simpler that the real world – candidates cannot actually “assess” audit risk in the same way as the auditor would in the real world. Hence the requirement to “identify” (and explain) audit risks.
As the examiner states in the examiner’s report “An auditor’s response does not have to be a detailed audit procedure, rather an approach the audit team will take to address the IDENTIFIED risk.”
So the requirement for an “auditor’s response” in the exam has a wider mean than the technical term described in ISA 330.
The examiner is giving candidates the opportunity to identify the RoMM that arises from non-compliance – the response to which would be to obtain more information/a greater understanding/clarify with management.
Does that make sense?
Thank you.
It does. Just to confirm if we indeed use a detailed substantive test as the auditor’s response, would that be acceptable to the examiner provided it is relevant to the risk identified?
maam i think am still unclear on this. What @rabihashim has asked also came to my mind. so ultimately you are suggesting that we can simply write that “Request the management to apply/follow correct accounting treatment when it is currently wrong” or not?
There are no generic answer points – a more diplomatic response might be “Discuss the accounting treatment with finance director and whether … [such and such should be something else in accordance with IFRS]”.
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