Acca aaa s21 Notes

assertion level 
require
 
the auditor to design and 
perform 
further audit procedures
, for example:
๏
Tests of controls (if intending to rely on their operating effectiveness);
๏
Substantive procedures that are specifically responsive to the identified significant risk;
๏
Obtaining more persuasive audit evidence the higher the assessment of risk; 
๏
Considering significant risks when determining key audit matters (see Chapter 23); 
๏
If significant risks relate to a component in a group audit, greater involvement of the group 
engagement partner and team (see Chapter 21).
Note that
substantive procedures
must be designed and performed for each 
material
class of 
transactions, account balance and disclosure irrespective of the assessed risks of material 
misstatement. 
September 2021 to June 2022 exams
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Chapter 12
QUESTION PRACTICE ON RISK
1. Events, discoveries and accounting issues and implications 
for the audit
A common format of a question on business or audit risk is to present you with notes from a recent 
planning meeting with a client, or an email from a partner raising certain issues affecting the client. 
You then have to identify the audit risks (ROMM and detection risk) arising and have to say how you 
would respond or describe how you would gather sufficient appropriate audit evidence. The 
information is given as a number of paragraphs each usually dealing with one piece of information. 
Generally, each paragraphs will have at least one implication for the audit of the financial statements. 
It is rare to be provided with information that is of little importance.
A similar question can ask about business risk rather than audit risk. There you do 
not
have to talk 
about evidence as we are not yet at the stage of carrying out an audit. Remember, auditors are 
interested in business risks because these frequently lead to audit risks.
Below is a selection of the type of issues that might be presented to you in exam questions. For each, 
identify the issue(s) raised and what the implications are for the audit.
Suggested answers are provided at the end of this chapter, but you might find it easier to listen to the 
lecture as each item is talked about there.
(1)
During an inventory count at a company which makes jam and marmalade, a box containing 12 
jars was dropped and the jars were broken. It was immediately noticed that the contents had a 
bad smell and had obviously gone off or had been contaminated.
(2)
On the final review of an audit file, the partner in charge discovered that a junior audit assistant 
had marked as ‘Correctly accounted for’ the purchases of a car where the VAT element had been 
posted by the client to Input VAT. [Note: VAT on cars is not recoverable.]