TOP AUDITING ISSUES FOR 2013 - CCH

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TOP AUDITING ISSUES FOR 2013 CPE COURSE
RISK ASSESSMENT
The risk assessment standards have existed for some time. However, there
are still implementation issues in more than a small percentage of audit
practices. These are significant problems because risk assessment has farreaching
effects on the design of further audit procedures, and thus on the
performance of many other areas of the audit.
Correlation of Risk Assessment to the Design of Further Audit Procedures
One of the core premises of the whole suite of risk assessment standards is
that auditors should concentrate their audit resources on the areas where
the risk of material misstatement is the highest. These standards are meant
to be applied on three levels:
The financial statements as a whole
Account balances and transactions
Relevant assertions
Most auditors do well in assessing risks at the financial statement and account
balance/transaction class levels. But they sometimes do not assess risks at
the “relevant assertion” level, or may do so intuitively but not document the
assessment. This often stems from a poor understanding of the standards,
and the relationship that they intend to make between the assessed risk of
material misstatement and the design of further audit procedures.
One of the consequences of this poor understanding is that further audit
procedures may not respond efficiently, or even adequately, to assessed risks
of misstatement. This can happen when third-party practice aids are used
in a mechanical fashion. For example:
Risk assessment practice aids are filled out, but their results are not
considered in applying further audit procedures.
Third-party audit programs are completed in a mechanical fashion
without correlating the nature and scope of further audit procedures to
the risk assessment.
Third-party audit programs are not appropriately tailored to the
engagement’s needs, and thus unnecessary work is performed.
The Public Company Accounting Oversight Board (PCAOB) has often cited
auditors of SEC-issuers for poorly correlating the nature and extent of their
audit procedures with their risk assessment. This led them to over-audit areas
of low risk, and under-audit higher risk areas.