1. ICAP Training Seminar Training Seminar: Students of Small and Medium Sized Practices February 17, 2007 BDO International

2. ICAP Training Seminar 2 BDO International The Future is Here… Outline of the Day Introduction to Risk –ISA 315 “ Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement” Responses to Risk –ISA 330 “Responses to Risk ” Practical aspects of Planning the Audit Work –ISA 300/320

3. ICAP Training Seminar 3 BDO International The Future is Here… In other words… ISA 240/315 What could go wrong? ISA 330 What are we going to do about it?

4. ICAP Training Seminar 4 BDO International The Future is Here… Why? Risk of Material Misstatement FraudError

5. ICAP Training Seminar 5 BDO International The Future is Here… Our Responsibilities ‘An auditor is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watchdog but not a bloodhound.’ Re: Kingston Cotton Mill CO (No 2) 1896

6. ICAP Training Seminar 6 BDO International The Future is Here… May want to hold final discussion at completion? Fraud should be considered in context of errors/testing results The Standard & The Audit Mandatory team discussion to be held (ISA 300) Professional Scepticism

7. ICAP Training Seminar 7 BDO International The Future is Here… Definition of Risk Audit Risk = Inherent Risk x Control Risk x Detection Risk Risk of Material Misstatement

8. ICAP Training Seminar 8 BDO International The Future is Here… ISA 315 - Overview (Para 2, ISA 315) “The auditor should obtain an understanding of the entity and its environment, including its internal control, sufficient to identify and assess the risks of material misstatement of the financial statements whether due to fraud or error, and sufficient to design and perform further audit procedures”

9. ICAP Training Seminar 9 BDO International The Future is Here… Requirements of ISA 315 OVERALL REQUIREMENTS Risk assessment procedures and sources of information about the entity and its environment, including IC Understanding the entity and its environment including IC Assessing the risks of material misstatement Communicating with those charged with governance and management Documentation

10. ICAP Training Seminar 10 BDO International The Future is Here… Risk Assessment “…continuous, dynamic process of gathering, updating and analysing information throughout the audit” (Para 6, ISA 315) Planning Meeting Risk assessment procedures: –Enquiries of management and others within the entity –Analytical procedures –Observation and inspection

11. ICAP Training Seminar 11 BDO International The Future is Here… ISA 330 - requirements Overall responses to risks of material misstatement at the financial statement level Audit procedures responsive to risks of material misstatement at the assertion level Evaluating the sufficiency and appropriateness of audit evidence obtained Documentation

12. ICAP Training Seminar 12 BDO International The Future is Here… Assertions – how much do you know? P&L –Occurrence –Completeness –Accuracy –Cutoff –Classification BS –Existence –Completeness –Rights & Obligations –Valuation –Presentation & Disclosure

13. ICAP Training Seminar 13 BDO International The Future is Here… Assessing the risk of material misstatement Risk of material misstatement at FS and assertion level Identify risk Relate risk to what can go wrong at the assertion level Consider magnitude of risks Likelihood of risks Specific Risk General Risk

14. ICAP Training Seminar 14 BDO International The Future is Here… General Risks and General Controls General Risks are those risks that affect multiple financial statement areas or tend to be pervasive to the financial statements. General Controls are those controls that are pervasive to the organisation Information Gathering

15. ICAP Training Seminar 15 BDO International The Future is Here… Nature of Procedures ASSURANCE Risk ToCsSAPsOSPs

16. ICAP Training Seminar 16 BDO International The Future is Here… ISA 300 Preliminary engagement activities Planning activities Initial audit engagements “The auditor should plan the audit so that the engagement will be performed in an effective manner.”

17. ICAP Training Seminar 17 BDO International The Future is Here… ISA 320 – Audit Materiality Planning Materiality Materiality refers to the size or nature of a misstatement that, in the light of the surrounding circumstances, makes it probable that the judgement of a reasonable user of the financial statements would have been changed or influenced as a result of the misstatement. Only material misstatements and uncertainties will affect our audit opinion. Our audit procedures should not therefore be concerned with detecting misstatements that could not be material; they need to be focused on obtaining assurance that material misstatements do not exist