AUDIT RISKS AND AUDITOR’s RESPONSES

AUDIT RISKS AUDITOR’s RESPONSES

ISSUE: SCENARIO (+) EXPLAIN: ACCOUNTING TREATMENT / RATIO / ● SUBSTANTIVE PROCEDURE
TREND / REGULATION / LAW (+) IMPLICATION: FS BALANCES
● ACTION
IMBALANCE; A / I OVERSTATED; L / E UNDERSTATED
[ GIVE 4 OR MORE]

MANAGEMENT
I: FIRM recently appointed as external auditors / New client 1 Ensure FIRM has suitable experienced team assigned and adequate
time is allowed to obtain understanding of the company and ROMM
E: Lack of cumulative knowledge and understanding of business
2 Perform additional SP on opening balances (properly and correctly b/d)
⮚ Not familiar with accounting policies, transactions and balances of
CLIENT 3 Review last year working paper from previous auditors

Imp: Increase detection risk / Less assurance on opening balances as not

their work
I: Reporting timetable for audit completion is quite short 1 Confirm the timetable with FD
E: The audit work may be not performed well 2 If not feasible, consider to perform interim audit in (_) or (_) to reduce
pressure of final audit
➢ ATM pressured as less time to prepare the financial information
3 Maintain professional scepticism and alert to risk of errors occurring
➢ Increased detection risk as lack of sufficient appropriate audit
evidence
Imp: The FS balances materially misstated / not TF view
I: New accounting system / software introduced 1 Undertake detailed testing to ensure C and A (data transfer)
E: Data and info have not been transferred from the old system correctly / 2 Perform walkthrough test / Document and test the new system
New system is not operating effectively
3 Discuss with management any issues after the system were
Imp: Opening balance misstated; Loss of ongoing data; Accounting implemented
records misrecorded
I: Time pressure to produce FS in order to secure bank finance and 1 Maintain professional scepticism throughout the course of the audit.
management wish to report strong results
2 Perform detailed cut-off testing on areas such as revenue, inventory and
E: Risk of manipulation on FS payables to ensure that cut-off has been correctly applied
Imp: Profit overstated / Assets overstated / Liabilities understated 3 Perform substantive procedures on estimates and judgements to ensure
accuracy.

I: Opening balances were transferred into the head office’s accounting 1 Discuss with management the process undertaken to transfer data
records at the beginning of the year
2 Perform audit test to confirm the transfer was complete and accurate
E: Incomplete transfer / Not perform accurately
3 Use CAATs to sample test the transfer of data
Imp: Opening balances materially misstated
I: FC appointed as temporary FD / FD’s roles allocated to finance 1 Remain alert throughout the audit for additional errors within the finance
department member department
E: New FC not so familiar with accounting policies / Increased workload; 2 Discuss with management the technical competency and experience of
No one working as a supervisor to their work NEW FC
Imp: Increase risk of errors in FS / Increased inherent and control risk 3 Devote more attention to any changes in accounting policies and key
judgemental decisions made by NEW FD
4 Ensure that increased substantive procedures are undertaken on the
material areas of the financial statements

NON-CURRENT ASSETS
I: Order PPE but not received yet / Pay in advance 1 Discuss with management whether the remaining PPE ordered have
arrived
E: Assets physically exist should be included in PPE / Deposit paid in
advance treated as prepayment 2 If so, verify physically a sample of assets on sites are recorded in NCAR
Imp: PPE overstated / Prepayment understated 3 Determine if the assets received is in use in current year and if so,
depreciation has commended at appropriate point

1 Review NCAR to determine if the deposit paid in advance has been

capitalised
2 Discuss with management the correct accounting treatment that deposit
should be recognised as prepayment
3 If incorrect, review any adjusting journal entry
I: Existing assets have been refurbished at a cost of ($_) / Incurred ($_) on 1 Obtain breakdown of refurbishment costs to supporting document to
updating, repairing and replacing of PPE confirm the nature of its existence
E: IAS 16 may not be met - incorrect capitalization / CAPEX need to be 2 Discuss with management the accounting treatment to confirm the
reviewed to assess whether it is capital or operating in nature valuation of PPE
Imp: NCA (PPE) overstated 3 Undertake further testing to ensure the classification in the financial
statements is correct
I: Valuation of PPE * direct attributable costs 1 Obtain a list of (_) expenses and agree to supporting documentation to
confirm nature of expenditure
E: IAS 16 PPE: DAC capitalised as NCA if criteria met
2 Discuss with management the process adopted in revaluation
➢ Incorrect accounting treatment
3 Review (_) expensed and process to allocate staff work to confirm A
Imp: (_) Expenses overstated; NCA understated
4 If adjusted, Review journal entry to confirm A
I: Valuation of PPE * revaluation 1 Discuss with management the process adopted for revaluation of assets
E: Incorrect valuation adjustment / Inadequate disclosure (IAS 16 not met) 2 Assess whether the whole class of assets have been revalued and if the
valuation was undertaken by expert
Imp: PPE overstated
3 Review disclosure of revalued assets whether in accordance with IAS 16
I: Enter into transaction during the year but complete at the yearend 1 Discuss with management to confirm the asset purchase was completed
E: Only include assets with physically exist at the year-end in asset at the year end
register
2 If so, inspect title deeds to ensure ownership and dated prior year end
Imp: PPE overstated if included
I: Valuation of PPE * asset useful life / depreciation rates
E: Changes may not be reasonable (IAS 16)
Imp: PPE overstated; Depreciation understated; Profit overstated
I: A number of assets which had not been fully depreciated were identified 1 Discuss with FD the depreciation policy for NCA and assess its
as being obsolete. reasonableness
E: Inappropriate accounting policy 2 Inquire the FD if the obsolete assets have been written off
Imp: Depreciation understated / Profit overstated / Assets overstated 3 If so, review the adjustments for completeness
I: Old PPE redundant with minimal scrap value / Surplus assets was sold 1 Agree that the asset has been removed from the non-current assets
and resulting in loss register
E: IAS 36 not met - PPE could be stated at lower of it carrying amount and 2 Recalculate the loss on disposal calculation and agree all items to
recoverable amount supporting documentation.
E: Depreciation policy may be inappropriate 3 Discuss the depreciation policy for land and buildings with the finance
director to assess its reasonableness.
Imp: Assets overstated / Profit overstated / Depreciation understated
4 Review the level of losses on disposal generated from other asset sales
to ascertain if this is a more widespread issue.
I: Revise asset lives and depreciation rates of (_) 1 Discuss with director the rationale for any extensions of asset lives and
reduction of depreciation rates
E: IAS 16 not met - asset lives should be reviewed annually (if asset lives
increase, depreciation charge decreases) ** if to boost sales 2 Review a sample of assets, compare the revised useful life to how often
these assets are replaced to assess the useful life of assets
Imp: Depreciation expenses understated
I: Development cost / Research cost (Intangible Asset) 1 Obtain a breakdown of RE in SOPL and DE capitalised to supporting
document to determine whether they have been correctly classified
E: IAS 38 not applied correctly: RE recognised as expense and DE
capitalised as ITA if all srict criteria met 2 Discuss with FD the accounting policy and treatment on this cost and
ensure it is in line with IAS 38
➢ If it is capital in nature, should be capitalised as ITA / If it is revenue
in nature, should be expensed to SOPL 3 Discuss assessment of useful life and its reasonableness
Imp: Intangible assets overstated; (_) Expenses understated; 4 Calculate amortisation charge to confirm A
5 Review the disclosure of ITA in financial statements whether meet IAS
38
I: Purchased (ITA other than DE RE) 1 Agree the purchase price to supporting documentation and confirm the
useful life of the ITA
E: IAS 38 not met - included as an ITA and amortised over the useful life
2 Review any corrected journal adjustment and discuss with management
Imp: ITA overstated / Profit overstated
3 Recalculate amortisation charged in current year to ensure V
4 Review the disclosure of ITA in financial statements and whether in
accordance with IAS 38
I: Upgrade website during the year 1 Review a breakdown of the costs and agree to invoices to assess the
nature of the expenditure
E: Possibility of new process / system not record data reliably and
accurately 2 If it is capital in nature, should be included in asset register / If it is
revenue in nature, should be expensed to SOPL
Imp: Risk over completeness and accuracy of data
3 Document the revised system and undertake tests over the
completeness and accuracy of data
 CURRENT ASSETS
I: Decreased the selling price significantly / Increase of finished goods 1 Perform detailed audit tests on cost and NRV to assess whether
inventory is overstated
E: IAS 2 not met - Decrease in selling price resulted in NRV is below costs
/ Increase level of pre-year-end orders 2 Compare cost and NRV to confirm this method is close approximate to
cost
Imp: Inventory overvalued
3 Review aged inventory report to assess whether inventory requires write
off
I: Valuation of inventory 1 Discuss with (_) that inventory can be sold
E: IAS 2 Inventory: valued at lower of cost or NRV 2 Discuss with customer to determine the likelihood of the sale and selling
price
➢ Risk of NRV is lower than cost
3 Review assumption to confirm reasonableness
Imp: Inventory overstated; Inventory (WIP) misstated COS understated
4 Obtain supporting documentation of delivery and shipping cost to
establish NRV
5 Discuss with management if write-down is required
I: Halted further sales / Initiated product recalled 1 Review the list of the good sales to the recall and confirm that the sales
have been removed from revenue and inventory
E: IAS 2 not met - NRV below its cost / CLIENT pay customer refunds and
sales need to be removed 2 Undertake a detailed test on affected inventory held in inventory to
confirm cost and NRV
Imp: Inventory overvalued / Revenue overstated, Inventory understated,
Liability understated 3 If refund not paid pre year end, agree that it is included within current
liabilities
I: Fire damaged inventory and scrap value been written down 1 Discuss with management whether any write downs will be made to the
affected goods
E: Write down should have been charged to SOPL / NRV may be below
cost 2 Undertake further testing to confirm cost and NRV of the affected goods
in inventory and all inventory on line-by-line basis is valued correctly
Imp; Scrap value overstated if inventory remain unsold / Inventory
overstated 2 Review any of the goods were sold pre or post year-end and at what
value to assess whether the scrap value is reasonable
3 If none, discuss with management the possibility of further write down
I: Goods in transit 1 Undertake detailed cut-off testing of goods in transit to ensure C A
E: Cut-off errors 2 Identify the last GRNs and a few before it at a cut-off point
Imp: Purchase, Inventory and Payables may be inaccurate 3 Review a sample of goods in inventory, match the selected GRNs with
PI in the correct accounting period
4 Confirm that only goods received before year-end should be recorded as
purchases
I: Significant levels of work in progress inventory at the year end 1 Discuss with management the process undertaken to assess the
percentage of completion WIP
E: IAS 2 may not be met as inventory should be valued at lower of cost or
NBV 2 Review by auditor while attend inventory count
➢ Risk of inventory not appropriately written down 3 Consider whether expert is required to value WIP
➢ AT unqualified to assess WIP 4 If yes, assess the competence, capabilities and objectivity of expert
(REQI)
Imp: Inventory (WIP) overvalued
I: CLIENT extended credit term to its customers 1 Review and test the controls surrounding how FD identifies old or
potentially irrecoverable receivables balances and credit control to ensure
E: Some balances may be irrecoverable, hence there is risk of bad debts
that they are operating effectively
Imp: Trade receivables balances could be overstated
2 Discuss with director the rationale for (WHAT HE DOES)
3 Extended post year-end cash receipts testing
 4 Review aged receivable ledger to assess valuation and the need for any
allowances
I: Removal of 1% inventory provision / Receivables higher than usual 1 Review aged receivables ledger to identity any slow-moving / old
receivables account and assess the need allowances for receivables
E: No allowances made for slow moving / obsolete inventory / Not write off
irrecoverable debts of receivables 2 Discuss with management the rationale for (_)
Imp: Inventory balance could be overstated 3 Test in detail and agree to supporting documentation
I: Not performed reconciliation of RLCA / PLCA and Supplier or 1 Perform further audit test in relation to (_) balances at the year end
Customer / Bank statement
2 Perform (_) reconciliation on a regular basis to focus more on unusual
E: Risk of errors in trade payables / trade receivables reconciling items
Imp: Payables misstated: Receivables misstated 3 Review the reconciliation files
I: Not continue / provide an allowance for receivables 1 Review post year-end cash receipts for this customer to assess whether
any payments have been made
E: Increase risk of trade debts might not be written off as allowances not
provided 1 Review the revised credit terms to identify any after date cash receipts
have been made
Imp: Receivables overstated
2 Discuss with FD whether he intends to make any allowances
3 Review customer correspondence to confirm any balances and ability to
pay the debts
4 Review whether any general or existing allowances for uncollected
accounts is sufficient to cover the amount of this receivable
I: Inventory movements during inventory count Review a sample of GRNs and GDNs and follow through into inventory
count records to ensure C
E: Counted twice / Omitted from counting
Imp: Inventory misstated
I: Bank reconciliation contain errors 1 Discuss with FD and request to reconcile bank balances
E: represent large errors which net off to a small amount 2 Test in detail the bank reconciliation and agree to supporting
documentation
Imp: Bank balances misstated / Increase fraud in bank 3 Maintain professional scepticism and alert to risk of fraud throughout the
audit work
 NON-CURRENT LIABILITIES AND CURRENT LIABILITIES
I: Borrow loan from the bank 1 Review post year-end cash receipt of loan in cash book to confirm the
bank loan has received
E: Misclassification of non-current and current liabilities
2 Review the disclosure of bank loan whether management has split the
Imp: Inadequate disclosure
bank loan between non-current and current liabilities
I: Loan has minimum profit target covenant 1 Review the covenant calculations to identify any defaults have occurred
and determine the effect on CLIENT
E: If breach, loan will be instantly repayable and need to be classified as
CL
Imp: Current liabilities understated
I: Refund damaged goods sold to some customers.
E: IAS 37 may not be met since provisions need to meet all of the criteria
➢ Unrecorded liability, provision not recognised
➢ Sales return omitted
Imp: Provisions understated; Sales overstated;
I: Employee threatened to sue company 1 Send an inquiry letter to client’s lawyers to inquire of the existence and
likelihood of success of any claim from (_)
E: Unrecorded liability (IAS 37)
2 Review the board of minutes to ascertain nature of claim and whether it
Imp: Provision understated; CL disclosure incomplete
is probable that the payments will be paid
3 The results of this should be used to assess the level of provision or
disclosure included in the financial statements
4 Review the post year-end cash book to identify whether any payments
have been made, compare actual payments to the amounts provided to
assess whether the provision is reasonable.
I: Employees redundant after the year end 1 Discuss with management the status of redundancy announcement
E: IAS 37 not met - timing of the announcement has not been confirmed, 2 If before year-end, review supporting documentation to confirm the
require to make provision timing
Imp: Provision understated / Expenses understated 3 Recalculate the redundancy provision and agree to financial statements
4 Review the disclosure of redundancy provision in accordance with IAS
37
I: No reply from insurance company 1 Discuss with management any response has been received from the
insurance company
E: IAS 37 not met - represent a possible contingent asset
2 Review insurance company correspondence to assess the probability of
Imp: Inadequate disclosure of contingent assets
future cash inflows.
3 If virtually certain, recognised as CA and review the treatment adopted is
correct
4 If probable, disclosed as contingent assets
I: Warranty provision / Sales using sale or return basis 1 Discuss with management the basis of the provision calculation
E: IAS 37 not met - provision required judgement as it is uncertain amount 2 Compare the calculation to the level of post year-end claims, if any,
made by customers
Imp: Provision understated / Expenses understated / Liabilities
understated 3 Discuss with FD the rationale behind reducing the level of provision this
year
4 Compare the provision with the actual level of claims to assess
reasonableness of judgement made by management
I: Material overdraft which has minimum profit and net assets covenants 1 Review the covenant calculations prepared by the company at the year-
attached to it end
E: If covenant breached, overdraft become instantly repayable / 2 Identify whether any defaults have occurred and if so, determine the
Insufficient cash, going concern implications effect on the company
Imp: Risk of manipulation of profit and net assets 3 Alert risk of manipulation and maintain professional scepticism
throughout the audit work
 INVENTORY COUNT
I: Perform inventory count at all sites on the same day 1 Review a sample of site to visit after assessing each site that:
E: unlikely for auditors to attend all sites - contain most goods (warehouse)
Imp: Increase detection risk / Not possible to gain SAAE on inventory - material in inventory balances
count
- history of inventory count issues
2 For unvisited sites, review any surrounding control, reports from expert
and exceptions noted during the count
3 Discuss with management any issues
I: Warehouse divided into areas and counts undertaken 1 Attend the inventory count held after the year-end and note details of
good received and despatched post year-end and agree to reconciliation
E: Incomplete counting, miscounting / double-counting
2 Review year-end inventory adjustment schedules and agree to
Imp: Inventory balances are misstated
supporting documentation obtained for all adjusting items
3 Increase the extent of inventory cut-off testing at year-end and count day
I: Undertake continuous / perpetual inventory count 1 Review the system to ensure C
E: This system should be counted at least once a year with adjustments 2 Assess the level of adjustments made to inventory whether it can be
made to the inventory records / If production not ceased, cut-off WIP need relied upon and acceptable
to be assessed
Imp: Inventory records may be inaccurate or incomplete or misstated
1 Discuss with management the process undertakes to assess the cut-off
point
2 Review this process while attending the inventory count
3 Give consideration whether independent expert is required
4 If so, arrange with consent from management
I: Undertake full year-end inventory count days 1 Test in detail the inventory adjustment schedule and review with
 supporting documentation obtained for all adjustment items
E: Adjustments are not completed accurately 2 Increase the extent of inventory cut-off testing at the year-end
Imp: Inventory records may be misstated, Inventory balances misstated
 STATEMENT OF PROFIT OR LOSS
I: Non-refundable deposits 1 Review a copy of the contract with customers to understand
performance obligation
E: IFRS 15 not met - deposits should not be recognised as revenue in the
SOPL until PO have been satisfied / recognised as deferred income within 1 Discuss with management the treatment of deposits received in advance
current liabilities to ensure it is appropriate and consistent with relevant standards
Imp: Incorrect treatment for deferred income as revenue / Revenue 2 Undertake further testing over the cut-of revenue during final audit
overstated / Liabilities understated
3 Review the disclosure of deferred income in financial statement to
ensure in accordance with accounting standards
I: Significant number of sales returns made 1 Review a sample of post year-end sales return and confirm if they
related to pre-year-end sales
E: Remove from revenue in financial statements
2 Discuss with management the reasons why increased level of sales
Imp; Revenue overstated / Inventory understated
returns
I: Significant annual bonus based on (_) at the year end 1 Aware of the increased risk of manipulation so assign more experiences
audit members to significant estimates and judgemental areas
E: (_) figures may be manipulated as to receive the bonus / Risk relating
to judgemental areas (provisions and estimates) 2 Allocate adequate time for ATM to obtain understanding of company and
attend at audit team briefing
Imp: (_) overstated
3 Alert the risk of manipulation and maintain professional scepticism
throughout the audit work
4 Increase test in detail any adjusting journal entries
I: Significant fall in (_) expenditure in SOPL 1 Perform proof in total (_) expenses and compare to actual expenses
during the year
E: (_) is fixed costs which unlikely to fluctuate significantly
2 Update the analytical review with the full year results
Imp: (_) expenses understated; Profit overstated
3 Discuss with management on any significant fluctuations
4 Obtain supporting evidence to verify managements explanations /
 Review management explanations to assess its reasonableness
I: CLIENT make a price promise to match the price of its competitors for 1 Discuss with management the basis of refund liability
similar product / Reduce estimated return rate for goods sold on sale or
2 Obtain supporting documentation to confirm the reasonableness of the
return basis
assumptions and calculations
E: IFRS 15 not met - required to provide a refund liability until performance
3 Review (PERIOD) to quantify the level of returns in the specified period
obligation has been settled
and compare to the assumed rate of (%)
Imp: Liabilities understated / Revenue overstated
4 Discuss any significant variations with the FD
I: Fraudulent expenses 1 Discuss with FD what procedures they have adopted to identify any
further frauds
E: Increase control risk which has not been identified / fraudulent
expenses not written off in SOPL 2 Conduct additional substantive testing over the affected areas of the
accounting records
Imp: Financial statements could include errors / Profits misstated
3 Maintain professional scepticism and be alert to risk of further frauds
and errors
I: Account ledger was closed down 1 Undertake test of transactions posted to (_) between (_) to identify
whether any transactions relation to current year have been included or
E: Risk of errors / Cut-off may be incorrect
any last year have been removed
Imp: (_) Misstated
 RATIOS / TREND
I: Gross margin has increased from (_%) Operating margin has decreased The classification of costs between cost of sales and operating expenses
from (_%) will be compared with the prior year to ensure consistency. Also increased
cut-off testing should be performed at the year-end to ensure that costs
E: This movement in gross margin is significant and there is a risk that
are complete.
costs may have been omitted or included in operating expenses rather
than cost of sales
Imp: Revenue overstated; Cost of sales understated
I: Revenue has grown by 19% in the year; however, cost of sales has only 1 Obtain a detailed breakdown of sales and cost and compare to prior
increased by 13%. year
E: This is a significant increase in revenue and along with the increase in 2 Discuss with management and take further investigation on any
gross margin may be due to an overstatement of revenue / Inconsistent differences occurred
with the fall in cost of sales
3 Perform cut off testing to verify that revenue is recorded in the right
IMP: Incorrect revenue recognition / IFRS 15 not applied; Cut-off error period
I: Overall liquidity of the company is in decline with the current and quick 1 Review the latest accounting records
ratios decreasing from (_) to (_) respectively / Cash balances have
2 Obtain confirmation from lawyer’s client
decreased significantly over the year / Has an overdraft of $580,000 at the
end of the year / Further the trade payable days have increased (_) 3 Review board minutes
implying the company is struggling to meet their liabilities as they fall due
4 Perform audit tests in relation to any subsequent events
** working capital issues
5 Consider whether the going concern basis is appropriate

Imp: All of these changes in key ratios could signal going concern
difficulties
 OTHER ISSUES
I: Indicators of going concern 1 Review management accounts
E: Increased risk that CLIENT is facing going concern difficulties 2 Send inquiry letter to lawyer’s client
Imp: Inadequate disclosure of going concern 3 Review board minutes
4 Obtain written representation
I: Disclosure of director’s bonus 1 Discuss this matter with management
E: if it is not in accordance with the relevant local legislation 2 Review disclosure in financial statements to ensure compliance with
local legislation
Imp: Inadequate disclosure
I: Issue irredeemable preference shares / bonus shares / rights issue to 1 Review the share issue documentation to confirm the nature of shares
finance
2 Review post year-end cash receipts from cash book and bank
E: IAS 1 not met - presented incorrectly as IRPS should be treated as statements to confirm that proceeds have been received
equity / Risk of equity being understated if issued for the first time
3 Review board minutes for authorisation and terms of (SHARES) issue
Imp: Equity understated / NCL overstated and if the transaction has been conducted in line with this approval
3 Review the disclosure of (_) in financial statements whether in
accordance with local legislation and reporting framework and
4 Confirm the split of share capital and share premium is correct
I: CLIENT intends to restructure its debt finance after the year-end 1 Devote more adequate time and suitable experience team to obtain
understanding of client
E: Present financial statements which show the best possible position and
performance 2 Maintain professional scepticism throughout the audit work and be alert
to risk of manipulation
Imp: Risk of manipulation on financial statements
3 Review significant estimates and judgements in light of misstatement
risk
I: Intend to propose final dividend after FS is finalised 1 Discuss the issue with management to confirm that dividend will not be
included within liabilities current year
E: IAS 10 not met - NAE should be disclosed in financial statements
Imp: Liabilities overstated / Equity understated 2 Review FS to ensure adequate disclosure of proposed dividend
I: Significant teeming and lading fraud occurred 1 Discuss with the FD what procedures they have adopted to fully identify
and quantify the impact of teeming and lading fraud
E: Risk of full impact of the fraud has not been quantified and additional
fraudulent expenses need to be written off 2 Review the receivable listing to identify any unusual postings to
individual receivable balances
Imp: financial statements misstated
3 Maintain professional scepticism and be alert to risk of manipulation
throughout the audit work
I: CLIENT undertake a stock exchange listing in the next 12 months 1 Ensure the availability of resources and suitably experienced audit team
E: Risk of manipulation financial statements to show the best possible 2 Maintain professional scepticism throughout the audit work and be alert
position and performance the risk of manipulation
Imp: Financial statements misstated
I: EA may place reliance on the controls testing work undertaken by the IA 1 EA should meet with IAD staff to read their reports
department
2 EA should review their files relating to (_) to ascertain the nature of work
E: Incorrect conclusion on the strength of the internal control’s CLIENT undertaken
Imp: Perform insufficient levels of substantive testing + Increase detection 3 Before using IAS, evaluate and perform audit procedures on the entirety
risk of the work which they plan to use (to determine the adequacy of audit
planning)
4 Re-perform some of testing carried out by IAD to assess its adequacy
I: CLIENT outsourced its function to SO 1 Discuss with management the extent of records maintained at CLIENT
since (cut-off point) and any monitoring of controls which has been
E: Insufficient and inappropriate evidence to confirm C and A of controls
undertaken by management over function
Imp: Increase detection risk
2 Consider to contact the SO (call / visit) to confirm the levels of control or
request type 1 or 2
I: CLIENT’s function was transferred to SO 1 Discuss with management the transfer process undertaken and any
controls which were put in place to ensure C and A of the data
E: Risk of errors occurred during the transfer process
Imp: Expense misstated 2 Undertake test of controls to confirm effectiveness of transfer controls
3 Perform substantive procedures on the transfer of information