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I would like to kindly ask about a difference in terms of procedures when it comes to risk assessment procedures and response to risk procedures.
One of the sentences in ACCA BPP study text makes me very confused: “The audit procedures (inspection of tangible assets, inspection of documents and records, observation, enquiry, confirmation, recalculation, reperformance, analytical procedures) can be used as risk assessment procedures, test of controls and substantive test.
For me it means nothing ie. procedures are used for procedures…:(
Would you please simplify for me this area of the syllabus?
Thank you very much!
All it is tryimg to say is that the only ways you can find out infor,ation is thriigh observation, inspection, enquirey etc. These are the types of procedure.
The information,you find could relate to:
Risk assessment: eg find out by enquirey if there had been changes to the IT system, fraud, errors etc. By observation you can see if inventory is held securely.
Tests of control: eg inspect documents for authorisation.
Substantive tests: eg trace payments through the cash book to the bank (inspection)
Somthe same types of procedure can be aimed at three different parts of the audit.
So we have the same procedures for assessing the risk and responding to risk? It looks like the auditors are doing the same job twice?
First they assess the risks using A,E,I, O and U procedures and then using the same procedures they respond those risks?
It’s still very confusing to me:(Please help me, as I really got stuck here:(
They are not the same job twice, they are a sequence.
1 Assess where the tisks are. You need information for that.
Then
2 Respond to those risks. If the company seems to have good internal control, carry out tests on the conttols to see if they are operating effectively and have limited substantive tests. If internal control is poor, carry out full substantive tests.
It is unusual, but not wrong, to use the AEIOU list to risk assessment. Prrhaps just think about AEIOU as applying to tests of control and substantive tests.
Thank you for such a fast response! Now, this topic become clearer…ufff:) It’s difficult to understand and memorize everything when you don’t have a hands-on experience…
Thank you again!
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