AUDIT & ASSURANCE INDIVIDUAL

ASSIGNMENT

A Report By
By
Mr. G.L.S Anuradha
SAB/BSc/2020A/WE-044

Course: AFM 30930 Audit and Assurance

Mr. Chiranga Perera

Year 3, Semester 1

School of Accounting and Business

The Institute of Chartered Accountants of Sri Lanka
29th July 2022
 Content

 Discussion of 10 Topics and Relationship with audit opinion…………………………….

 Explanation of selected area……………………………………………………………….

 New Trends…………………………………………………………………………………

 Conclusion………………………………………………………………………………….

 References…………………………………………………………………………………..
Discussion of 10 Topics and Relationship with audit opinion
Entity level controls

Entity level controls can be more particular to a type of audit engagement or have a broad
meaning for all audit engagement types. Entity-level controls are often those that are
implemented across the entire organization rather than those that are tailored to a particular
department or activity, such as finance, manufacturing, research & development, etc.

Entity-level controls are the primary controls for ensuring that organizational-wide management
directives are carried out and upheld. They could alternatively be viewed as higher-level controls
that affect a larger audience or are more universal in nature.

Materiality calculation

The term "materiality" refers to a concept or convention used in auditing and accounting to
describe the relevance or importance of a sum, a transaction, or a discrepancy. The goal of an
audit of financial statements is to give the auditor the ability to express an opinion on whether
the financial statements were prepared in accordance with generally accepted accounting
principles in all material respects.

Fraud risk

The danger of unanticipated financial, material, or reputational damage resulting from internal or
external individuals within the firm engaging in fraud is known as fraud risk. Speaking of the
Fraud, In an audit conducted in accordance with generally accepted auditing standards, the
independent auditors objective is to express an opinion on how fairly the financial statements
present in all material respects financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.

Audit evidences

The paperwork that an auditor gathers as part of their examination of the financial accounts,
internal controls, and other matters necessary to certify a client's financial statements is known as
audit evidence.
Audit evidence is all the information, whether obtained from audit procedures or other sources,
that is used by the auditor in arriving at the conclusions on which the auditor's opinion is based.
Audit evidence consists of both information that supports and corroborates management's
assertions regarding the financial statements or internal control over financial reporting and
information that contradicts such assertions.

Professional skepticism

a mindset that incorporates a critical evaluation of the facts, a questioning mindset, and being
aware of circumstances that could point to potential misrepresentation due to fraud or error.

Overall Objectives of the Independent Auditor and the Conduct of an Audit in accordance with
International Standards on Auditing. The auditor must approach the planning and execution of
the audit with professional skepticism, keeping in mind that there may be situations that lead to
the financial statements being significantly misstated.

Audit risk assessment

Risk assessment is the identification and evaluation of several aspects of an entity whereby risks
are identified and evaluated for use in guiding the audit procedures that will be necessary in
order to substantiate the amounts reported in the financial statements.

Audit risk is not normally practical or cost-effective for auditors to collect evidence in order to
have absolute assurance or confidence of detecting all material deviations. Instead, auditors try to
ensure that their conclusions and opinions are based on reasonable assurance, which is obtained
from the audit work.

Audit reporting

The formal written opinion about the entity's financial statements is contained in the audit report.
At the conclusion of the audit, the auditor presents the report to the management. In addition to
opinions on the assertions, it also contains factual data.

Investors are particularly interested in the audit opinion because it serves as a reflection of the
integrity of the audit report of the company. The audit opinion is based on several variables,
including how available the data was to them, whether they had an opportunity to follow all due
procedures, and the level of materiality. Each of these variables are subjective in nature and
depend on the auditor’s opinion.

Test of controls

Any auditing technique used to assess an organization's internal controls is known as a test of
control. Determine if these internal controls are adequate to identify or reduce the risk of material
misstatements is the goal of control tests in auditing.

The auditor's objective in an audit of internal control over financial reporting is to express an
opinion on the effectiveness of the company's internal control over financial reporting. Because a
company's internal control cannot be considered effective if one or more material weaknesses
exist, to form a basis for expressing an opinion, the auditor must plan and perform the audit to
obtain appropriate evidence that is sufficient to obtain reasonable assurance 5 about whether
material weaknesses exist as of the date specified in management's assessment.

Substantive procedures

The goal of substantive processes is to produce data that an auditor can use to demonstrate that
the completeness, validity, and accuracy of an entity's financial records are not materially
misrepresented.

Data analytics and JE testing

When the auditor wants to examine the nature, chronology, and scope of the underlying journal
entries, journal entry testing becomes necessary. When businesses record financial transactions,
it is primarily done to identify the material misstatement that results from fraud. The auditor is
expected to be increasingly watchful when it comes to auditing financial statement transactions.

the knowledge gained from studying audit-related data, frequently with the aid of technology.
For audit analytics to be effective, a lot of data must be analyzed, just like for other types of data
analytics.
Explanation of selected area

Audit evidences

Depending on the industry, the state of the client's financial system, and the type of audit,
different clients will have different amounts and types of audit evidence collected. The volume
of data gathered must offer a solid foundation for the auditor's conclusion. The audit evidence is
gathered and compiled into the auditor's working materials.

Examples of auditing evidence include bank accounts, management accounts, payrolls, bank
statements, invoices, and receipts.

Test of controls

The majority of financial statement audits must adhere to the global auditing standard. This
standard mandated that the auditor do a risk analysis during the planning phase and comprehend
the client's company operations and internal control system. The auditor typically gains insight
into the nature of the client company's operations as a whole, operational internal controls, and
internal controls over financial reporting.

For example, the auditor is working on the audit of ABC's financial accounts and it will begin
very soon. Audit planning must typically be done and approved by the audit partner before the
auditor conducts the substantive test or leaves for fieldwork. One of the numerous areas that the
standard requires auditors to document during the planning phase is testing the internal control.
New Trends

Entity level controls

 As entity increase their technological maturity and gather more data, the added volume may
expose insufficient controls and potentially lead to unreliable outputs.
 Businesses are quickly embracing new technology to improve consumer experiences and
gain market share, but many control programs have been unable to keep up.
 As they issue new rules and amend old ones, regulators are transitioning to a risk-based
strategy.
 Any losing trust that a robust internal controls environment can help firms become more
flexible, resilient, and enable accelerated digital transformation should be restored in light of
the role that the risk and controls community played during the pandemic.

Audit reporting

 Evolving role of internal auditors and expanding scope of audits

 Business performance and quality assessments
 Organizational structure for accountability and transparency
 Shift away from SOX compliance towards risk-based auditing
 Upgrading audit infrastructure and technological advancement

Audit risk assessment

 Technology, a source of risk and an enabler for effective risk management.

 Convergence of risk oversight with strategic planning.
 Increasing role of Board in defining risk management strategy.
 Increased regulatory compliance requirements.
Conclusion

The auditor can make inferences about numerous characteristics of the line items in the financial
statements with the aid of auditing and assurance analysis. These findings ought to be factual,
defensible, and independent of presumptions. Such an analysis results in the formation of an
opinion. Auditors may seek assistance and analytical support for that procedure from all
pertinent parties as well as from those who have previously mentioned thoughts and theories. As
a result, auditors are able to make expert decisions. Since the inception of those auditing
procedures, some key and supporting factors have undergone a significant change as a result of
global statuses. These changes will continue to occur in the present and the future as a result of
global situations and practices.

(Anon., n.d.) (Anon., n.d.) (Anon., n.d.) (Anon., n.d.) (Anon., n.d.) (Anon., n.d.) (Anon., n.d.)
(Anon., n.d.) (Anon., n.d.)
References
Anon., n.d. [Online]
Available at: https://meridian.allenpress.com/cia/article/13/1/P7/10455/The-Outcome-Effect-and-
Professional-Skepticism

Anon., n.d. [Online]

Available at:
https://www.researchgate.net/publication/228302309_Recent_Trends_in_Audit_Report_and_Earnings
_Announcement_Lags

Anon., n.d. [Online]

Available at: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/audit/us-audit-current-
trends-audit-committee-reporting.pdf

Anon., n.d. [Online]

Available at: https://www.slideshare.net/sazzad128/audit-risk-assessment-chapter-9

Anon., n.d. [Online]

Available at: https://www.in.gov/ig/files/Risk-Assessment-and-Audit-Planning_Joyce.pdf

Anon., n.d. [Online]

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inion&aqs=chrome..69i57j33i160l2.66867j0j4&sourceid=chrome&ie=UTF-8

Anon., n.d. [Online]

Available at:
https://www.researchgate.net/publication/312203671_Manual_journal_entry_testing_Data_analytics_
and_the_risk_of_fraud

Anon., n.d. [Online]

Available at: https://www.accaglobal.com/hk/en/student/exam-support-resources/professional-exams-
study-resources/p7/technical-articles/scepticism.html

Anon., n.d. [Online]

Available at: https://corporatefinanceinstitute.com/resources/knowledge/accounting/materiality-
threshold-in-audits/