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Dear Kim,
I am confused in writing auditor response to certain audit risks.
To me the response looks like a substantive procedure.This is a sample response I wrote earlier today:
“Inspect post-year bank statements and bank ledger for evidence of payments and agree this to the receivables balance at the year end.
Review customer correspondence to see if there is any amount in dispute.”
Please provide guidance on how to write auditor responses to tackle audit risks.
There is some very helpful guidance in the examiner’s reports. Here are some key points from the S/D25 examiner’s report available here: https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f8/examinersreports/aa-examiner-report-d25.pdf
“Having identified and explained the risk, the next step is to provide the auditor’s response.
Responses must be practical within the context of the scenario and care should be taken to
ensure the response is one an auditor would take and not a management response.“Auditor responses do not have to be a detailed procedure, rather it is an approach the audit team
will take. Care must be taken however, to ensure that the approach suggested actually
addresses the risk identified and contains sufficient detail.”It may be helpful to consider in these terms:
An audit risk is either RoMM (IR or CR) or DR.
The response to RoMM at the FS level (e.g. risk that the entity may not be able to continue as a going concern) would require an entire audit program of procedures – so a “response” has to summarise the approach – i.e. evaluating management’s assessment of going concern, including cash flow forecasts.
For a RoMM at the assertion level – yes – the response may be very much along the lines of a substantive procedure but “Plan to perform a positive external confirmation request of trade receivable balances” is an approach rather than one substantive procedure – because there’s so much more to external confirmation than simply requesting them.
For detection risk – e.g. new client scenario – you would need to consider reducing non-sampling risk by having more senior staff engaged in the audit or greater supervision/review.
I hope that gives you some ideas!
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