Document ID: chunk:federal_register_of_legislation:F2020L00252:body:0:p21
Version: federal_register_of_legislation:F2020L00252
Segment Type: other
Provision Reference: 
Character Range: 59444–62493

the appropriate audit approach for designing and performing further audit procedures.  For example, the auditor may determine that:

(a)                Only by performing tests of controls may the auditor achieve an effective response to the assessed risk of material misstatement for a particular assertion;

(b)                Performing only substantive procedures is appropriate for particular assertions and, therefore, the auditor excludes the effect of controls from the relevant risk assessment of the risk of material misstatement.  This may be because the auditor's risk assessment procedures have not identified any effective controls relevant to the assertion, or because auditor has not identified a risk for which substantive procedures alone cannot provide sufficient appropriate audit evidence and therefore is not required to test the operating effectiveness of controls. testing controls would be inefficient and Ttherefore, the auditor does may not intend to rely on plan to test the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures; or

(c)                A combined approach using both tests of controls and substantive procedures is an effective approach.

The auditor need not design and perform further audit procedures where the assessment of the risk of material misstatement is below the acceptably low level. However, as required by paragraph 18, irrespective of the approach selected and the assessed risk of material misstatement, the auditor designs and performs substantive procedures for each material class of transactions, account balance, and disclosure.

82.               Existing paragraph A7 is amended to read as follows:

Extent of an audit procedure refers to the quantity to be performed, for example, a sample size or the number of observations of a control activity.

83.               Existing paragraph A9 is amended to read as follows and footnote 2 is inserted:

ASA 315 requires that the auditor's assessment of the risks of material misstatement at the assertion level is performed by assessing inherent risk and control risk. The auditor assesses inherent risk by assessing the likelihood and magnitude of a misstatement taking into account how, and the degree to which the inherent risk factors affect the susceptibility to misstatement of relevant assertions.[2] The auditor's assessed risks, including the reasons for those assessed risks, may affect both the types of audit procedures to be performed and their combination.  For example, when an assessed risk is high, the auditor may confirm the completeness of the terms of a contract with the counterparty, in addition to inspecting the document.  Further, certain audit procedures may be more appropriate for some assertions than others.  For example, in relation to revenue, tests of controls may be most responsive to the assessed risk of material misstatement of the completeness assertion, whereas substantive procedures may be most responsive to the assessed risk of material