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ISA 330 (REDRAFTED) THE AUDITOR’S RESPONSES TO ASSESSED RISKS
Risk features extremely heavily in auditing and one of the primary functions involved in auditing is identifying the risks faced by an entity, both business and financial, and reducing these risks to an acceptable level. ISA 330 deals with the responsibilities faced by the auditor in designing and implementing audit procedures which specifically respond to the risk of material misstatement. ISA 330 interrelates to that of ISA 315 in identifying and assessing the risks of material misstatement by gaining an understanding of the entity and the environment in which it operates.
Auditors have a responsibility to gather sufficient appropriate audit evidence to support the overall audit opinion and this audit evidence is gathered, primarily, through two fundamental processes:
- Substantive testing.
- Tests of controls.
ISA 330 defines substantive testing and tests of controls as follows:
Substantive procedures — an audit procedure designed to detect material misstatements at the assertion level. Substantive procedures comprise:
a. Tests of details (of classes of transactions, account balances, and disclosures); and
b. Substantive analytical procedures.
Tests of controls — an audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.
[ISA330.4 (a) and (b)]
The phrase ‘responsive to the assessed risk of material misstatement’ ...
