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*RISK BASED APPROACH

-dont test all

*Three components of Audit Risk


IR
-normal
-elevated
-significant

CR
-no reliance
-partial reliance
-high reliance

DR
-low
-moderate
-high

*IR (judgement than by manager)


suscebtibility of account balance or class of transactions or disclosure to
misstatement before any related controls
1. nature
2. likelihood of occurence
3. magnitude (will it be material)

*CR
Risk that material misstatement will not be prevented or detected and
corrected by the client's IC.

*DR
The risk to not detect a material misstatement that exists in FS
* Control is partly your control, you have control to rely on the controls
*ALL OF THE ACCOUNTS ARE ASSUMED NORMAL= ASSUMED ROMM
*MANAGEMENT OVERRIDE IS ALWAYS "SIGNIFICANT"
-there is no amount procedures you can do to reduce the risk or tolerate it
*RISK OF FRAUD (REBUTTABLE RISK)
- SIGNIFICANT

- May arise from employee or management so it can be rebutted where it


originated
* Assessment of IR
-always assess IR per assertion

*Accuracy Initial Recognition


*Valuation Subsequent Recognition
*MATERIALITY
Omission/inclusion would affect
-Over all materiality
-Benchmark Materiality
-Profit Oriented = PBIT
-Others=explain other benchmark
* Check for driver in anchoring benchmarks
* If a client is PIE/HPC low lower rate of the range, others higher end of the range.
*OVERALL MATERIALITY
Maximum tolerable amount before it can totally concludes that the FS is
materially stated or not.
*PERFORMANCE MATERIALTY (haircut)
-Where we will perform our audit procedures
Overall 10m
Haircut 25%
Performance 7.5m
-Recurring Engagement use the high end of the range
*SUMMARY OF UNADJUSTED MISSTATEMENT (SUM) POSTING LEVEL
-percentage of the overall materiality in practice use 5% of materiality
*Appropriate Evidence
- Relevant
- Reliable
*Sufficient Evidence
*Bank confirmation should always be done

PWC AUDIT PROCESS


1.
2.
3.
4.

Plan for planning and initial procedures.


Identifying risks
Develop audit approach
Finalise audit

*acceptance
*terms of engagement
*mobilize engagement team
*attending a team planning meeting

*required planning procedures


IDENTIFYING RISKS AND DEVELOPING STRATEGY
1. Understanding of the entity and its environment
-consider macroeconomic factors
-if recurring engagement, ask prior year file
2. Identifying risks
3. Internal control assessment
4. Determine materiality
5. Develop strategy

Obtaining Evidence
1. Control testing
2. TOD
3. Substantive testing

*Test of Control
1. Identify Control
2. Evaluate control if operating effectively
3.

*Substantive procedures
1. Vouching (source to
2. Tracing
-must be performed to do assert all of the FS assertions

*Test of details
-transactional
-use sampling techniques
A. Targeted testing (most preferred)
- not used if homogenous and too many samples
B. Non statistical
a. Regular
b. Supplemental
c. 2 way revenue approach
-must perform target test
C. Accept Reject
-not used to test valuation and accuracy
-use to test attributes
*Substantive Analytical Procedures
- required in planning and completion
1. Assess reliability of data and develop expectations
- If the source is internal must have rigorous assessment of data

2. Define threshold
- may be your materiality threshold (overall, performance)
- must be defined
3. Compute the difference
4. Investigate significant differences
- must be corroborated with other evidence

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