Document ID: chunk:federal_register_of_legislation:F2021C01250:reg:27:p8
Version: federal_register_of_legislation:F2021C01250
Segment Type: reg
Provision Reference: reg 27 (pt 8/23)
Character Range: 30145–33267

* Increasing the number of locations to be included in the audit scope.

A3.             Such considerations, therefore, have a significant bearing on the auditor's general approach, for example, an emphasis on substantive procedures (substantive approach), or an approach that uses tests of controls as well as substantive procedures (combined approach).

Audit Procedures Responsive to the Assessed Risks of Material Misstatement at the Assertion Level

The Nature, Timing, and Extent of Further Audit Procedures (Ref: Para. 6)

A4.             The auditor's assessment of the identified risks of material misstatement at the assertion level provides a basis for considering 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 assessment of the risk of material misstatement.  This may be because the 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. Therefore the auditor may not 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.

A5.             The nature of an audit procedure refers to its purpose (that is, test of controls or substantive procedure) and its type (that is, inspection, observation, enquiry, confirmation, recalculation, re-performance, or analytical procedure).  The nature of the audit procedures is of most importance in responding to the assessed risks.

A6.             Timing of an audit procedure refers to when it is performed, or the period or date to which the audit evidence applies.

A7.             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.

A8.             Designing and performing further audit procedures whose nature, timing, and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level provides a clear linkage between the auditor's further audit procedures and the risk assessment.

Responding to the Assessed Risks at the Assertion