GCSE English: non fiction writing. Choose either a topic or a person as the basis for your writing. If a topic, research all aspects of the issue and then write about it in your own words. Include your own views, with reasons. If a person, give reasons for your choice and say why you think he or she is important. Minimum of 600 words. My project is about Abortion: I have chosen to do it about abortion because I think it is a very serious topic and it is a subject that I feel very strongly about. There are a lot of arguments for and against abortion. In this project I will write about the basic facts and what women/girls should do if they are ever in that sort of situation. Abortion is a deliberate end of a pregnancy, so that it does not result in the birth of a childâ€¦. An abortion is when a pregnancy is ended before a baby is capable of surviving on its own outside the motherâ€™s body. An abortion can either happen naturally i.e a miscarriage or it can be induced, done deliberately. An induced abortion is only legal if it is carried out within the law and in the circumstances which the law permits. You should NEVER attempt to induce an abortion yourself as this could cause you serious injury. In England, Wales and Scotland abortion is legal under 24 weeks of pregnancy if two doctors agree that it is majorly necessary for one of the following reasons: Â· If having the baby would harm the motherâ€™s mental or physical health more than having an abortion. This has to involve the mother explaining how she feels about the pregnancy to a doctor. Â· If having the baby will harm the mental or physical health of the children she already has. Â· If it is necessary to save the womenâ€™s life or prevent serious harm to her. Â· I... ...they cannot be treated properly, there is only one way to help them get through it which is by counselling but many women find it very difficult and it takes them 10 years, maybe just to get back to their normal lifestyle and routines. Conclusion: By researching on abortion I have realised that abortion does have negative and positive things about it. Abortion does solve many problems but it can also create huge problems. Some people do not accept it and find it unacceptable as it is virtually killing an innocent human being, however it has helped many women and young adults in continuing their lives in a peaceful manor and it has also saved many children from being unwanted and being brought up with the proper love and affection they need. In conclusion I think that abortion is neither right nor wrong, it depends on the situation it is involved in.
For this assignment I am investigating how Marks and Spencer plc works, and I will look at its aims and objectives, functional areas, employment law, communication methods and organisational structure of the company.
Marks and Spencer is a publicly owned company in the retail sector. It is in the retail industry and is a large company. The company has been running for many years.
Marks and Spencer is one of the UKâ€™s leading retailers of clothing, foods, homeware and financial services. It serves 10 million customers a week over 300 UK stores.
Aims and objectives
All businesses have aims, this helps them achieve and reach their targets to make their business successful.
Therefore Marks and Spencerâ€™s aim is to attract the customers with appealing, superior quality products at attractive prices. They do this by creating exclusive products for the customers. The company aims to put the customer first in everything they do and offer the highest values of customer care in order to satisfy them.
In order to achieve the aims, businesses need to decide what objectives to take to help them. According to Marks and Spencerâ€™s objectives are to:
1. Deliver the agreed minimum customer service standards
2. Carry out and develop new systems
3. Reduce theft and loss
4. Create a visually exciting store
5. Permit people
6. Improve effectiveness through managing risk
7. Recruit the right people to provide service standards
8. Deliver customer focused training
In large businesses people work as a team in order to help the business run smoothly and effectively, they work together in different functional areas which relate to them.
Businesses have these functional areas to help them achieve their aims and objectives.
I will be looking at four functional areas, which are:
1. Human Resources
3. Marketing and Sales
Human Resources are involved with the staffs that work for the company. The staffs in this area are important because they are partly responsible for keeping the business successful.
The Human Resources staffs are involved in:
* Working conditions
* Health and safety
* Training and development
* Employee organisations and unions
Vacancies for Marks and Spencer are mainly advertised in recruitment agencies, local or national newspaper, local job centres and careers offices. Marks and Spencer has a company policy to reply to every application sent. These applications are filed for 3 months and then are destroyed so applicants will have to reapply every 12 weeks.
There are three ways to apply for a position in store management. You must be either a graduate/undergraduate with a degree or HND and GCSE Maths and English grade C+. For school or college leavers, with A Levels and GCSE Maths and English C+.
Marks and Spencer look for people with high standards, who will enjoy working in the retail environment and they look for people who are good with customers or at customer service and people who will work harmoniously in a team.
Marks and Spencer has several of working conditions, these include holiday entitlement, hours of work, pay etc.
All staff, including temporary and permanent, is entitled to a holiday each year. This holiday entitlement runs from April 1st to March 31st. You can take a holiday if you have a contract of 13 weeks or more.
Marks and Spencer has a store policy that all staff should plan and book their holiday in advance because the store operates on a first come first serve basis. They need to book their holiday before to avoid any disappointments.
Health and Safety
Many health services at Marks and Spencer are provided for the staff such as the staff doctor, store dentist and smear tests for the female staff.
The staff doctor attends the store regularly to help and give advice. All staff is entitled to make an appointment if they wish to see the doctor.
Every 6 months the store dentist also attends the store for a routine check. He will recommend treatment to staff if needed. A private medical is available to all permanent staff.
Cervical smears are available for the female staff and wives of male employees every 3 years.
Training and Development
Marks and Spencer provide staff with training opportunities. The NVQ programme was one of the largest training programmes they had.
At Marks and Spencer, people skills are important whoever you come into contact with, such as customers, suppliers or members of the staff.
Employee Organisations and Trade Unions
The employees do not officially have union representation, but are entitled to join a union if they wish to. The company wishes all its contacts with unions to be conducted in a decent and co-operative manner.
It is illegal for management to interfere with the right of an individual to belong to an independent union as defined in the Trade Union and Labour Relations Act 1976.
The types of job roles in human resources are:
Job Title Job Role
Human resources Managing the HR department and staff, involved with
Manager industrial relations and trade unions negotiations,
Implementing the organisations HR policies.
Training/staff Responsible for training and staff development.
Health and safety Overseeing all the health and safety matters and
Personnel/staffing Keeping staff records, monitoring staff welfare
HR administrative Administrative work relating to the human resources
Businesses need to manage and control the money coming in and going out of the business. They also need to understand this information in order to plan what to do next and to see if they need to make any changes.
All businesses deal with:
* Preparing accounts
* Paying wages and salaries
* Obtaining capital and resources.
The major sources of finance include back profits, shares, banking facilities, hire purchase/leasing and trade credits.
The finance staffs at Marks and Spencer have to deal with a range of activities related to checking and recording of all amounts of money received and paid. These are entered into an account each customer has.
When money is being received it is banked as soon as possible and also is checked carefully and recorded against each item sold and against each customerâ€™s account.
Every Business including Marks and Spencer has to pay its own bills. They will owe money for raw materials used in the manufacture of a product and for the services it uses.
Paying wages and salaries
Wages and Salaries are done by a computerised procedure. Marks and Spencer pay their staff monthly direct into their bank account, using a system called credit transfer.
The companyâ€™s bank transfers money to all the employeeâ€™s accounts.
The bank keeps payroll records, which shows how much each staff earns and how much they are meant to be paid, this helps the bank to transfer the right amount of money into the staff account.
Obtaining capital and resources
Capital is the money the owner puts into Marks and Spencer. This will be needed when the business starts trading. The money buys all the requirements Marks and Spencer needs. When the business starts to trade and make a profit, the profit is used to buy new stock to sell and also saved incase the company wants to buy new equipment.
The job roles in finance are:
Job Title Job Role
Finance Director Giving advice to senior managers on the overall financial
Policy of the organisation.
Financial Manager Managing the finance function and staff.
Advising on financial resources.
Management Producing continuous financial information for
Credit controller Advising on credit policies. Ensuring that money owing to
the company is kept within agreed levels.
Payroll Responsible for overseeing the company payroll and
Administrator salary/wage section.
Ledger Clerks Assist the chief accountant in the recording of all
Marketing and Sales
Businesses carry out a range of activities to identify the customerâ€™s needs and then try to provide for them.
These activities include:
* Market research
* Sales promotion
Marks and Spencer has a separate department, which is involved with market research. Market research deals with customer feedback and external agencies. Other types of market research that are used at Marks and Spencer are through credit card, database, direct mailing, and telephone and through the customer services department. Market research can be carried out through primary and secondary research.
Marks and Spencer have to decide how to promote their products, this usually depends on the type of product or service they want to promote
Marks and Spencer advertise its promotion through corporate advertising, for example with seasonal products like strawberries in the summer.
The major markets are the consumer markets worldwide but Marks and Spencer find their main shoppers are middle aged, middle class and female.
Sales promotions are campaigns, which offer special discounts and attract customers to try a new a product. Sale promotions at Marks and Spencer include offering free samples of food, special discounts and offers. Marks and Spencer set up campaigns for a few reasons such as attracting more buyers but mainly if a new product is not selling as well as it should be then the campaign is set up.
The major customers for the products are the general public.
The job roles involved in Marketing and Sales are:
Job Title Job Role
Marketing director Responsible for the overall marketing function and its aims
Sales manager Responsible for sales staff and the achievement of sales
targets, often within the UK.
Advertising In charge with advertising and agency staff over
Manager publicity campaign.
Export manager Responsible for overseas agents and the achievement of sales targets overseas.
Market Find out consumer opinions on current and proposal
Researchers goods and services.
Order clerks Accept and process sale orders
The administration function helps a business run smoothly from day to day and keeping things up to date. It covers a number of different tasks including:
* Clerical work, collecting mail, keeping records, organising meetings, responding to enquiries
* Cleaning, maintenance and security
Every day Marks and Spencer would receive telephone calls that need to be answered, mails that needs opening and replying, a list of tasks to do, visitors that arrive at the reception some without a appointment, Fax messages, documents to sort out and need to prepare and documents that need updating etc.
Every morning Marks and Spencer receive a number of mails, these mails are then sorted correctly, date stamped then delivered to different departments and individual staff. Marks and Spencer also arrange for their mail to be collected to sent out at a certain time.
Marks and Spencer receive enquiries from a variety of people, companies and also other people from inside the organisation departments. Marks and Spencer try to answer these enquiries quickly with correct information.
Marks and Spencer has a large amount of documents produce by organisations such as forms, fax/telephone messages, letters and reports. These documents are then filed and some are stored in the computer.
Cleaning and maintenance
Marks and Spencer employ cleaners to do routine cleaning duties. Some employees do the basic cleaning and the others donâ€™t. If a cleaner is off sick, the supplier has to replace them as part of their contract.
Marks and Spencer security staff are not employed by the company but by a specialist security firm. The responsibility of the firm is training and supply.
The security staffs are responsible for patrolling the premises.
The job roles involved in Administration are:
Job Title Job Role
Administration Managing the administration operations of the
Company A senior executive responsible for all legal affairs of the
secretary company, dealing with shareholders, insurance and
IT manager Managing all the IT requirements of the company, including
Equipment and advising on future needs.
PA/secretarial Responsible for providing secretarial and administrative
Staff support, usually to senior managers.
Equal opportunities and employment legislation
Recruiting and keeping the right employees is important to every business. Both employers and employees have rights and responsibilities.
These are safeguarded by employment law, not only by employee organisations and unions.
The 4 main Acts are:
1. The Employment Rights Act 1996
2. The Sex Discrimination Act 1975
3. The Race Relations Act 1976
4. The Disability Discrimination Act 1995
The Employment Rights Act 1996
This act establishes a wide range of rights that employees have when they are being employed, for example:
* The right to a contract of employment must be given within two months of starting employment and must include details such as name of employee and employer, date when employment began, rate of pay and when its due, hours of work, sick pay etc.
* All female employees have the right to maternity leave, this can be up to 29 weeks and also can return to work afterwards.
* Employees have the right to take time off to look for a new job, attending interviews and still be paid.
* Employees have the right not to be unfairly dismissed.
* Employees have the right to redundancy payments if an employee is dismissed because the job is no longer available.
The Sex Discrimination Act 1975
This act makes it illegal for anyone to be discriminated against someone on the grounds of gender either directly or indirectly. In employment this applies to recruitment and selection for jobs and promotion, training the way you are treated in a job, dismissal and redundancy.
The Race Relations Act 1976
This act makes it unlawful to discriminate against people of colour, race, nationality or ethnic origin. In the track of employment it is unlawful to discriminate in the arrangements for employment, which are:
* In the interview or advisementâ€™s
* In the terms of employment
* By refusing employment because of colour, race, nationality or ethnic origin.
* In promotion and training
* By dismissing a person
The Disability Discrimination Act 1995
This act is concerned with discrimination against people with disabilities in employment. The disability may be physical, sensory or mental but must be relatively long-term. Employers must not treat a disabled person less favourable than others.
Employers must be prepared to make reasonable adjustments to the workplace to help the disabled person do the job. Disabled persons who suffer discrimination can complain to an employment tribunal.
Below are some examples of how employees at Marks and Spencer are protected by these Acts:
A female staff from Marks and Spencer was pregnant and she was due to a maternity leave as agreed on for 30 weeks, she carried on working for a couple of weeks before she was due to the leave. When she took that leave, it happened to be longer than she thought, she had to take an extra few weeks of and when she came back, the job was still there for her.
New black female staffs were starting work at Marks and Spencer. On her first day, she needed to be trained and taught about the health and safety matters, this had to be done by a health and safety officer from Marks and Spencer. When she met the officer, he wasnâ€™t very welcoming and didnâ€™t seem pleased. He showed her around but the woman thought he wasnâ€™t explaining very clearly and she was worried because she wouldnâ€™t know exactly what to do if there was a fire, so she reported this to the employer and it seemed that he didnâ€™t give her the full instructions, so another officer had to be arranged to train her.
A man applied for a job at Marks and Spencer, he was unsure whether he would get the job because of his disability problem but when they called him in for an interview he was surprised. They discussed his disability problem and the arrangements for him to work, so in the end they gave him a part time job, which he was very pleased about.
People working in different functional areas have to communicate with each other as well as with people outside the business such as customers and suppliers. In order to keeps the business running smoothly and effectively they need to keep the other people in the business well informed, to do this they might use:
Face to face Internet
Memo Video conferencing
Marks and Spencer Internal methods of communication to different functional areas are the telephone, email, fax machine, verbal meetings and appointments and also video conferencing, which are used around the country to save time on travelling and costs.
The management team spend a high amount of time on the sales floor visiting various sections to see supervisors and staff.
Marks and Spencer external communications include letters received from the charities, they receive about 10,000 appeals for support every year.
External communications also include project work, Equal opportunities and also the company support projects, which help the elderly and the young and also people with special needs and those who require help in the members of the community.
Due to the rising number of communications throughout the company, the communication problems have been encountered and one of the biggest problems has been to ensure everyone is informed. Due to the speed of the business, Marks and Spencer have to ensure that all the staffs try to ensure professional communication by being prepared and organised.
The developments Marks and Spencer now have in mind is to improve and make communications more better through e-mail, to improve the in store telephone and the bleep systems such as changing to mobile phones and a speed dial network system.
Below is a diagram showing how the functional areas communicate with each other externally and internally.
Functional Type of Reason why
Human -Telephone Confidentiality
Resources -face to face Urgent
-Letter Fast and easy to use
-Meeting Saves time to talk to individuals
Finance -Letter Security -E-mail Confidentiality
-Meeting Get feedback from people quick
Administration -Fax can be kept for future reference
-Letter evidence and can be copied.
-Email convenient while on the computer
Marketing and -Meeting Group discussion, more ideas to share
Different functional areas use different communicational methods to communicate with each other, this is because employers need to know which type of communication to use for each purpose. For example, human resources might use the telephone or letter to communicate with a different functional area because it might be confidential, this way no confidential information is being reached out of the organisation. And also if a letter is being used, this can be kept for future reference and hard evidence for any purpose.
Another type of communication is a meeting; this can save a lot of time and can get feedback from the people at the meeting immediately. Meetings also save time on having to discuss things individually.
These types of communication can help Marks and Spencer achieve their aims and objectives, one of the main aims of Marks and Spencer is to put the customers first and to offer the highest values in customer care to satisfy them.
To achieve this aim, Marks and Spencer keep the flow of information within the company, they keep the right people informed with up to date information so that when customers ask for certain information it will be as accurate as possible.
The Marketing and Sales functional area keep the staff informed about the current range and prices of products for the benefit of the customers. When an order is being received, they pass it on to be sorted in order. To meet the needs of the customers, the staffâ€™s listens to what customers have to say whether it is a good or bad thing and take that into account.
Staff at Marks and Spencer has meetings to discuss any problems whether concerning about the customers or other matters so they can solve the problem maybe for the benefit of the customers who shop at Marks and Spencer.
Organisational Structure of Marks and Spencer
To make the business run successfully without any chaos, they organise their employees in functional areas and section so they know what to do.
This helps the business to make decisions and carry them out. Every business has its own way of structure.
Marks and Spencer organisational structure of the business is a hierarchy structure, which is tall and has a number of levels. This type of structure may be large but also has some disadvantages as well as advantages within this structure.
Below are the advantages and disadvantages.
* Clear job role and lines of responsibility
* Each level will have different opinions so therefore more ideas
* Clear pay structure
* A large number of colleagues
* A range of facilities
* Good promotion
* Slow communication flow. If any staffs require information, this could take time.
* Slow reaction to changes and challenges because many people have to be informed whether decisions or changes were going to be made.
* Staff at a lower level may feel the manager at the top has no idea what they think or do
Here is an organisational structure of a small company.
As you can see, this structure is small and does not have many levels. This type of structure is called a Flat structure. This is very much different to the Marks and Spencer structure because Marks and Spencer is a large company.
From the diagram structure we can tell that the company is rather small and has fewer levels. But there are also some advantages as well as disadvantages within this structure.
Below are a list of the advantages and disadvantages of a flat structure.
* Communication is quicker and more accurate
* Good at responding quickly to new ideas and customer needs
* Operate quite easily
* Less management cost
* Flexible working hours
* Business is small
* No one to share ideas with
* May experience problems with shortage of staff if business is expanding.
Auditing and Assurance Standards Council Philippine Standard on Auditing 330 (Redrafted) THE AUDITORâ€™S RESPONSES TO ASSESSED RISKS PSA 330 (Redrafted) PHILIPPINE STANDARD ON AUDITING 330 (REDRAFTED) THE AUDITORâ€™S RESPONSES TO ASSESSED RISKS (Effective for audits of financial statements for periods beginning on or after December 15, 2009) CONTENTS Paragraph Introduction Scope of this PSAâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. Effective Dateâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦ Objectiveâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. Definitionsâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦ RequirementsOverall Responsesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦. Audit Procedures Responsive to the Assessed Risks of Material Misstatement at the Assertion Levelâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. Adequacy of Presentation and Disclosureâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦. Evaluating the Sufficiency and Appropriateness of Audit Evidenceâ€¦â€¦â€¦â€¦ Documentationâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. 1 2 3 4 5 6-24 25 26-28 29-31 Application and Other Explanatory Material Overall Responsesâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦. A1-A3 Audit Procedures Responsive to the Assessed Risks of Material Misstatement the Assertion Levelâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.A4-A54 Adequacy of Presentation and Disclosureâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦ A55 Evaluating the Sufficiency and Appropriateness of Audit Evidenceâ€¦â€¦â€¦â€¦. A56-A58 Documentationâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦.. A59 Acknowledgment Philippine Standard on Auditing (PSA) 330 (Redrafted), â€œThe Auditorâ€™s Responses to Assessed Risksâ€ should be read in the context of the â€œPreface to the Philippine Standards on Quality Control, Auditing, Review, Other Assurance and Related Services,â€ which sets out the authority of PSAs. 2 PSA 330 (Redrafted) IntroductionScope of this PSA 1. This Philippine Standard on Auditing (PSA) deals with the auditorâ€™s responsibility to design and implement responses to the risks of material misstatement identified and assessed by the auditor in accordance with PSA 315, â€œIdentifying and Assessing Risks of Material Misstatement Through Understanding the Entity and Its Environmentâ€ in a financial statement audit. Effective Date 2. This PSA is effective for audits of financial statements for periods beginning on or after December 15, 2009. Objective 3.The objective of the auditor is to obtain sufficient appropriate audit evidence about the assessed risks of material misstatement, through designing and implementing appropriate responses to those risks. Definitions 4. For purposes of the PSAs, the following terms have the meanings attributed below: (a) Substantive procedure â€“ An audit procedure designed to detect material misstatements at the assertion level. Substantive procedures comprise: (i) Tests of details (of classes of transactions, account balances, and disclosures), and ii) Substantive analytical procedures. (b) Test of controls â€“ An audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level. Requirements Overall Responses 5. The auditor shall design and implement overall responses to address the assessed risks of material misstatement at the financial statement level. (Ref: Para. A1-A3) 3 PSA 330 (Redrafted) Audit Procedures Responsive to the Assessed Risks of Material Misstatement at the Assertion Level 6.The auditor shall design and perform further audit procedures whose nature, timing, and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level. (Ref: Para. A4-A8) 7. In designing the further audit procedures to be performed, the auditor shall: (a) Consider the reasons for the assessment given to the risk of material misstatement at the assertion level for each class of transactions, account balance, and disclosure, including: (i) The likelihood of material misstatement due to the particular characteristics of the relevant class of transactions, account balance, or disclosure (i. . , the inherent risk); and (ii) Whether the risk assessment takes account of relevant controls (i. e. , the control risk), thereby requiring the auditor to obtain audit evidence to determine whether the controls are operating effectively (i. e. , the auditor intends to rely on the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures); and (Ref: Para. A9-A18) (b) Obtain more persuasive audit evidence the higher the auditorâ€™s assessment of risk. (Ref: Para. A19) Tests of Controls 8.The auditor shall design and perform tests of controls to obtain sufficient appropriate audit evidence as to the operating effectiveness of relevant controls when: (a) The auditorâ€™s assessment of risks of material misstatement at the assertion level includes an expectation that the controls are operating effectively (i. e. , the auditor intends to rely on the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures); or (b) Substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level. Ref: Para. A20-A24) 9. In designing and performing tests of controls, the auditor shall obtain more persuasive audit evidence the greater the reliance the auditor places on the effectiveness of a control. (Ref: Para. A25) 4 PSA 330 (Redrafted) Nature and Extent of Tests of Controls 10. In designing and performing tests of controls, the auditor shall: (a) Perform other audit procedures in combination with inquiry to obtain audit evidence about the operating effectiveness of the controls, including: (i) How the controls were applied at relevant times during the period under audit. ii) The consistency with which they were applied. (iii) By whom or by what means they were applied. (Ref: Para. A26-29) (b) Determine whether the controls to be tested depend upon other controls (indirect controls), and if so, whether it is necessary to obtain audit evidence supporting the effective operation of those indirect controls. (Ref: Para. A3031) Timing of Tests of Controls 11. The auditor shall test controls for the particular time, or throughout the period, for which the auditor intends to rely on those controls, subject to aragraphs 12 and 15 below, in order to provide an appropriate basis for the auditorâ€™s intended reliance. (Ref: Para. A32) Using audit evidence obtained during an interim period 12. When the auditor obtains audit evidence about the operating effectiveness of controls during an interim period, the auditor shall: (a) Obtain audit evidence about significant changes to those controls subsequent to the interim period; and (b) Determine the additional audit evidence to be obtained for the remaining period. (Ref: Para.A33-A34) Using audit evidence obtained in previous audits 13. In determining whether it is appropriate to use audit evidence about the operating effectiveness of controls obtained in previous audits, and, if so, the length of the time period that may elapse before retesting a control, the auditor shall consider the following: 5 PSA 330 (Redrafted) (a) The effectiveness of other elements of internal control, including the control environment, the entityâ€™s monitoring of controls, and the entityâ€™s risk assessment process; b) The risks arising from the characteristics of the control, including whether it is manual or automated; (c) The effectiveness of general IT-controls; (d) The effectiveness of the control and its application by the entity, including the nature and extent of deviations in the application of the control noted in previous audits, and whether there have been personnel changes that significantly affect the application of the control; (e) Whether the lack of a change in a particular control poses a risk due to changing circumstances; and f) The risks of material misstatement and the extent of reliance on the control. (Ref: Para. A35) 14. If the auditor plans to use audit evidence from a previous audit about the operating effectiveness of specific controls, the auditor shall establish the continuing relevance of that evidence by obtaining audit evidence about whether significant changes in those controls have occurred subsequent to the previous audit. The auditor shall obtain this evidence by performing inquiry combined with observation or inspection, to confirm the understanding of those specific controls, and: a) If there have been changes that affect the continuing relevance of the audit evidence from the previous audit, the auditor shall test the controls in the current audit. (Ref: Para. A36) (b) If there have not been such changes, the auditor shall test the controls at least once in every third audit, and shall test some controls each audit to avoid the possibility of testing all the controls on which the auditor intends to rely in a single audit period with no testing of controls in the subsequent two audit periods. (Ref: Para. A37-39) Controls over significant risks 15.When the auditor plans to rely on controls over a risk the auditor has determined to be a significant risk, the auditor shall test those controls in the current period. 6 PSA 330 (Redrafted) Evaluating the Operating Effectiveness of Controls 16. When evaluating the operating effectiveness of relevant controls, the auditor shall evaluate whether misstatements that have been detected by substantive procedures indicate that controls are not operating effectively. The absence of misstatements detected by substantive procedures, however, does not provide audit evidence that controls related to the assertion being tested are effective. Ref: Para. A40) 17. When deviations from controls upon which the auditor intends to rely are detected, the auditor shall make specific inquiries to understand these matters and their potential consequences, and shall determine whether: (a) The tests of controls that have been performed provide an appropriate basis for reliance on the controls; (b) Additional tests of controls are necessary; or (c) The potential risks of misstatement need to be addressed using substantive procedures. (Ref: Para. A41) 18.The auditor shall evaluate whether, on the basis of the audit work performed, the auditor has identified a material weakness in the operating effectiveness of controls. 19. The auditor shall communicate material weaknesses in internal control identified during the audit on a timely basis to management at an appropriate level of responsibility and, as required by PSA 260 (Revised), â€œCommunication with Those Charged with Governance,â€ 1 with those charged with governance (unless all of those charged with governance are involved in managing the entity). Substantive Procedures 0. Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure. (Ref: Para. A42-A47) Substantive Procedures Related to the Financial Statement Closing Process 21. The auditorâ€™s substantive procedures shall include the following audit procedures related to the financial statement closing process: (a) Agreeing or reconciling the financial statements with the underlying accounting records; and 1 Close off document approved May 2006. 7PSA 330 (Redrafted) (b) Examining material journal entries and other adjustments made during the course of preparing the financial statements. (Ref: Para. A48) Substantive Procedures Responsive to Significant Risks 22. When the auditor has determined that an assessed risk of material misstatement at the assertion level is a significant risk, the auditor shall perform substantive procedures that are specifically responsive to that risk. When the approach to a significant risk consists only of substantive procedures, those procedures shall include tests of details. Ref: Para. A49) Timing of Substantive Procedures 23. When substantive procedures are performed at an interim date, the auditor shall cover the remaining period by performing: (a) Substantive procedures, combined with tests of controls for the intervening period; or (b) If the auditor determines that it is sufficient, further substantive procedures only, that provide a reasonable basis for extending the audit conclusions from the interim date to the period end. (Ref: Para. A51-A53) 24.If misstatements that the auditor did not expect when assessing the risks of material misstatement are detected at an interim date, the auditor shall evaluate whether the related assessment of risk and the planned nature, timing, or extent of substantive procedures covering the remaining period need to be modified. (Ref: Para. A54) Adequacy of Presentation and Disclosure 25. The auditor shall perform audit procedures to evaluate whether the overall presentation of the financial statements, including the related disclosures, is in accordance with the applicable financial reporting framework. Ref: Para. A55) Evaluating the Sufficiency and Appropriateness of Audit Evidence 26. Based on the audit procedures performed and the audit evidence obtained, the auditor shall evaluate before the conclusion of the audit whether the assessments of the risks of material misstatement at the assertion level remain appropriate. (Ref: Para. A56-57) 27. The auditor shall conclude whether sufficient appropriate audit evidence has been obtained. In forming an opinion, the auditor shall consider all elevant audit evidence, regardless of whether it appears to corroborate or to contradict the assertions in the financial statements. (Ref: Para. A58) 8 PSA 330 (Redrafted) 28. If the auditor has not obtained sufficient appropriate audit evidence as to a material financial statement assertion, the auditor shall attempt to obtain further audit evidence. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall express a qualified opinion or a disclaimer of opinion. Documentation 29. The auditor shall document: a) The overall responses to address the assessed risks of material misstatement at the financial statement level, and the nature, timing, and extent of the further audit procedures performed; (b) The linkage of those procedures with the assessed risks at the assertion level; and (c) The results of the audit procedures, including the conclusions where these are not otherwise clear. (Ref: Para. A59) 30. If the auditor plans to use audit evidence about the operating effectiveness of controls obtained in previous audits, the auditor shall document the conclusions reached about relying on such controls that were tested in a previous audit. 1. The auditorsâ€™ documentation shall demonstrate that the financial statements agree or reconcile with the underlying accounting records. *** Application and Other Explanatory Material Overall Responses (Ref: Para. 5) A1. Overall responses to address the assessed risks of material misstatement at the financial statement level may include: â€¢ Emphasizing to the audit team the need to maintain professional skepticism. â€¢ Assigning more experienced staff or those with special skills or using experts. â€¢ Providing more supervision. â€¢Incorporating additional elements of unpredictability in the selection of further audit procedures to be performed. 9 PSA 330 (Redrafted) â€¢ A2. Making general changes to the nature, timing, or extent of audit procedures, for example: performing substantive procedures at the period end instead of at an interim date; or modifying the nature of audit procedures to obtain more persuasive audit evidence. The assessment of the risks of material misstatement at the financial statement level, and thereby the auditorâ€™s overall responses, is affected by the auditorâ€™s understanding of the control environment.An effective control environment may allow the auditor to have more confidence in internal control and the reliability of audit evidence generated internally within the entity and thus, for example, allow the auditor to conduct some audit procedures at an interim date rather than at the period end. Weaknesses in the control environment, however, have the opposite effect; for example, the auditor may respond to an ineffective control environment by: â€¢ â€¢ Obtaining more extensive audit evidence from substantive procedures. â€¢ A3.Conducting more audit procedures as of the period end rather than at an interim date. Increasing the number of locations to be included in the audit scope. Such considerations, therefore, have a significant bearing on the auditorâ€™s general approach, for example, an emphasis on substantive procedures (substantive approach), or an approach that uses tests of controls as well as substantive procedures (combined approach). Audit Procedures Responsive to the Assessed Risks of Material Misstatement at the Assertion Level The Nature, Timing, and Extent of Further Audit Procedures (Ref: Para. 6) A4.The auditorâ€™s assessment of the identified risks at the assertion level provides a basis for considering the appropriate audit approach for designing and performing further audit procedures. For example, (as appropriate and notwithstanding the requirements of this PSA)2, the auditor may determine that: (a) Only by performing tests of controls may the auditor achieve an effective response to the assessed risk of material misstatement for a particular assertion; (b) Performing only substantive procedures is appropriate for particular assertions and, therefore, the auditor excludes the effect of controls from the relevant risk assessment.This may be because the auditorâ€™s risk assessment procedures 2 For example, as required by paragraph 20, irrespective of the approach selected, the auditor designs and performs substantive procedures for each significant class of transactions, account balance, and disclosure. 10 PSA 330 (Redrafted) have not identified any effective controls relevant to the assertion, or because testing controls would be inefficient and therefore the auditor does not intend to rely on the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures; or c) A combined approach using both tests of controls and substantive procedures is an effective approach. A5. The nature of an audit procedure refers to its purpose (i. e. , test of controls or substantive procedure) and its type (i. e. , inspection, observation, inquiry, confirmation, recalculation, reperformance, or analytical procedure). The nature of the audit procedures is of most importance in responding to the assessed risks. A6. Timing of an audit procedure refers to when it is performed, or the period or date to which the audit evidence applies.A7. Extent of an audit procedure refers to the quantity to be performed, for example, a sample size or the number of observations of a control activity. A8. Designing and performing further audit procedures whose nature, timing, and extent are based on and are responsive to the assessed risks of material misstatement at the assertion level provides a clear linkage between the auditorsâ€™ further audit procedures and the risk assessment. Responding to the Assessed Risks at the Assertion Level (Ref: Para. 7(a)) NatureA9. The auditorâ€™s assessed risks may affect both the types of audit procedures to be performed and their combination. For example, when an assessed risk is high, the auditor may confirm the completeness of the terms of a contract with the counterparty, in addition to inspecting the document. Further, certain audit procedures may be more appropriate for some assertions than others. For example, in relation to revenue, tests of controls may be most responsive to the assessed risk of misstatement of the completeness ssertion, whereas substantive procedures may be most responsive to the assessed risk of misstatement of the occurrence assertion. A10. The reasons for the assessment given to a risk are relevant in determining the nature of audit procedures. For example, if an assessed risk is lower because of the particular characteristics of a class of transactions without consideration of the related controls, then the auditor may determine that substantive analytical procedures alone provide sufficient appropriate audit evidence.On the other hand, if the assessed risk is lower because of internal controls, and the auditor intends to base the substantive procedures on that low assessment, then the auditor performs tests of those controls, as required by paragraph 8(a). This may be the case, for 11 PSA 330 (Redrafted) example, for a class of transactions of reasonably uniform, non-complex characteristics that are routinely processed and controlled by the entityâ€™s information system. Timing A11.The auditor may perform tests of controls or substantive procedures at an interim date or at the period end. The higher the risk of material misstatement, the more likely it is that the auditor may decide it is more effective to perform substantive procedures nearer to, or at, the period end rather than at an earlier date, or to perform audit procedures unannounced or at unpredictable times (for example, performing audit procedures at selected locations on an unannounced basis). This is particularly relevant when considering the response to the risks of fraud.For example, the auditor may conclude that, when the risks of intentional misstatement or manipulation have been identified, audit procedures to extend audit conclusions from interim date to the period end would not be effective. A12. On the other hand, performing audit procedures before the period end may assist the auditor in identifying significant matters at an early stage of the audit, and consequently resolving them with the assistance of management or developing an effective audit approach to address such matters. A13. In addition, certain audit procedures can be performed only at or after the period end, for example: â€¢ â€¢Examining adjustments made during the course of preparing the financial statements; and â€¢ A14. Agreeing the financial statements to the accounting records; Procedures to respond to a risk that, at the period end, the entity may have entered into improper sales contracts, or transactions may not have been finalized. Further relevant factors that influence the auditorâ€™s consideration of when to perform audit procedures include the following: â€¢ The control environment. â€¢ When relevant information is available (for example, electronic files may subsequently be overwritten, or procedures to be observed may occur only at certain times). The nature of the risk (for example, if there is a risk of inflated revenues to meet earnings expectations by subsequent creation of false sales agreements, 12 PSA 330 (Redrafted) the auditor may wish to examine contracts available on the date of the period end). â€¢ The period or date to which the audit evidence relates. Extent A15. The extent of an audit procedure judged necessary is determined after considering the materiality, the assessed risk, and the degree of assurance the auditor plans to obtain.When a single purpose is met by a combination of procedures, the extent of each procedure is considered separately. In general, the extent of audit procedures increases as the risk of material misstatement increases. For example, in response to the assessed risk of material misstatement due to fraud, increasing sample sizes or performing substantive analytical procedures at a more detailed level may be appropriate. However, increasing the extent of an audit procedure is effective only if the audit procedure itself is relevant to the specific risk.A16. The use of computer-assisted audit techniques (CAATs) may enable more extensive testing of electronic transactions and account files, which may be useful when the auditor decides to modify the extent of testing, for example, in responding to the risks of material misstatement due to fraud. Such techniques can be used to select sample transactions from key electronic files, to sort transactions with specific characteristics, or to test an entire population instead of a sample. Considerations specific to public sector entities A17.For the audits of public sector entities, the audit mandate and any other special auditing requirements may affect the auditorâ€™s consideration of the nature, timing and extent of further audit procedures. Considerations specific to smaller entities A18. In the case of very small entities, there may not be many control activities that could be identified by the auditor, or the extent to which their existence or operation have been documented by the entity may be limited. In such cases, it may be more efficient for the auditor to perform further audit procedures that are primarily substantive procedures.In some rare cases, however, the absence of control activities or of other components of control may make it impossible to obtain sufficient appropriate audit evidence. Higher Assessments of Risk (Ref: Para 7(b)) A19. When obtaining more persuasive audit evidence because of a higher assessment of risk, the auditor may increase the quantity of the evidence, or obtain evidence that is more relevant or reliable, e. g. , by placing more emphasis on obtaining third 13 PSA 330 (Redrafted) party evidence or by obtaining corroborating evidence from a number of independent sources.Tests of Controls Designing and Performing Tests of Controls (Ref: Para. 8) A20. Tests of controls are performed only on those controls that the auditor has determined are suitably designed to prevent, or detect and correct, a material misstatement in an assertion. If substantially different controls were used at different times during the period under audit, each is considered separately. A21. Testing the operating effectiveness of controls is different from obtaining an understanding of and evaluating the design and implementation of controls.However, the same types of audit procedures are used. The auditor may, therefore, decide it is efficient to test the operating effectiveness of controls at the same time as evaluating their design and determining that they have been implemented. A22. Further, although some risk assessment procedures may not have been specifically designed as tests of controls, they may nevertheless provide audit evidence about the operating effectiveness of the controls and, consequently, serve as tests of controls. For example, the auditorâ€™s risk assessment procedures may have included: Inquiring about managementâ€™s use of budgets. â€¢ Observing managementâ€™s comparison of monthly budgeted and actual expenses. â€¢ Inspecting reports pertaining to the investigation of variances between budgeted and actual amounts. These audit procedures provide knowledge about the design of the entityâ€™s budgeting policies and whether they have been implemented, but may also provide audit evidence about the effectiveness of the operation of budgeting policies in preventing or detecting material misstatements in the classification of expenses. A23.In addition, the auditor may design a test of controls to be performed concurrently with a test of details on the same transaction. Although the purpose of a test of controls is different from the purpose of a test of details, both may be accomplished concurrently by performing a test of controls and a test of details on the same transaction, also known as a dual-purpose test. For example, the auditor may design, and evaluate the results of, a test to examine an invoice to determine whether it has been approved and to provide substantive audit evidence of a 14 PSA 330 (Redrafted) ransaction. A dual-purpose test is designed and evaluated by considering each purpose of the test separately. A24. In some cases, as discussed in PSA 315, the auditor may find it impossible to design effective substantive procedures that by themselves provide sufficient appropriate audit evidence at the assertion level. This may occur when an entity conducts its business using IT and no documentation of transactions is produced or maintained, other than through the IT system. In such cases, paragraph 8(b) requires the auditor to perform tests of relevant controls.Audit Evidence and Intended Reliance (Ref: Para. 9) A25. A higher level of assurance may be sought about the operating effectiveness of controls when the approach adopted consists primarily of tests of controls, in particular where it is not possible or practicable to obtain sufficient appropriate audit evidence only from substantive procedures. Nature and Extent of Tests of Controls Other audit procedures in combination with inquiry (Ref: Para. 10(a)) A26. Inquiry alone is not sufficient to test the operating effectiveness of controls.Accordingly, other audit procedures are performed in combination with inquiry. In this regard, inquiry combined with inspection or reperformance may provide more assurance than inquiry and observation, since an observation is pertinent only at the point in time at which it is made. A27. The nature of the particular control influences the type of procedure required to obtain audit evidence about whether the control was operating effectively. For example, if operating effectiveness is evidenced by documentation, the auditor may decide to inspect it to obtain audit evidence about operating effectiveness.For other controls, however, documentation may not be available or relevant. For example, documentation of operation may not exist for some factors in the control environment, such as assignment of authority and responsibility, or for some types of control activities, such as control activities performed by a computer. In such circumstances, audit evidence about operating effectiveness may be obtained through inquiry in combination with other audit procedures such as observation or the use of CAATs. Extent of tests of controls A28.When more persuasive audit evidence is needed regarding the effectiveness of a control, it may be appropriate to increase the extent of testing of the control. As well as the degree of reliance on controls, matters the auditor may consider in determining the extent of tests of controls include the following: 15 PSA 330 (Redrafted) â€¢ The frequency of the performance of the control by the entity during the period. â€¢ The length of time during the audit period that the auditor is relying on the operating effectiveness of the control. â€¢The expected rate of deviation from a control. â€¢ The relevance and reliability of the audit evidence to be obtained regarding the operating effectiveness of the control at the assertion level. â€¢ The extent to which audit evidence is obtained from tests of other controls related to the assertion. PSA 530, â€œAudit Sampling and Other Means of Testingâ€ contains further guidance on the extent of testing. A29. Because of the inherent consistency of IT processing, it may not be necessary to increase the extent of testing of an automated control.An automated control can be expected to function consistently unless the program (including the tables, files, or other permanent data used by the program) is changed. Once the auditor determines that an automated control is functioning as intended (which could be done at the time the control is initially implemented or at some other date), the auditor may consider performing tests to determine that the control continues to function effectively. Such tests might include determining that: â€¢ Changes to the program are not made without being subject to the appropriate program change controls, The authorized version of the program is used for processing transactions, and â€¢ Other relevant general controls are effective. Such tests also might include determining that changes to the programs have not been made, as may be the case when the entity uses packaged software applications without modifying or maintaining them. For example, the auditor may inspect the record of the administration of IT security to obtain audit evidence that unauthorized access has not occurred during the period. Testing of indirect controls (Ref: Para. 10(b))A30. In some circumstances, it may be necessary to obtain audit evidence supporting the effective operation of indirect controls. For example, when the auditor decides to test the effectiveness of a user review of exception reports detailing sales in excess of authorized credit limits, the user review and related follow up is the control that is directly of relevance to the auditor. Controls over the accuracy of 16 PSA 330 (Redrafted) the information in the reports (for example, the general IT controls) are described as â€˜indirectâ€™ controls. A31.Because of the inherent consistency of IT processing, audit evidence about the implementation of an automated application control, when considered in combination with audit evidence about the operating effectiveness of the entityâ€™s general controls (in particular, change controls), may also provide substantial audit evidence about its operating effectiveness. Timing of Tests of Controls Intended period of reliance (Ref: Para. 11) A32. Audit evidence pertaining only to a point in time may be sufficient for the auditorâ€™s purpose, for example, when testing controls over the entityâ€™s physical inventory counting at the period end.If, on the other hand, the auditor intends to rely on a control over a period, tests that are capable of providing audit evidence that the control operated effectively at relevant times during that period are appropriate. Such tests may include tests of the entityâ€™s monitoring of controls. Using audit evidence obtained during an interim period (Ref: Para. 12) A33. Relevant factors in determining what additional audit evidence to obtain about controls that were operating during the period remaining after an interim period, include: â€¢ â€¢The specific controls that were tested during the interim period, and significant changes to them since they were tested, including changes in the information system, processes, and personnel. â€¢ The degree to which audit evidence about the operating effectiveness of those controls was obtained. â€¢ The length of the remaining period. â€¢ The extent to which the auditor intends to reduce further substantive procedures based on the reliance of controls. â€¢ A34. The significance of the assessed risks of material misstatement at the assertion level. The control environment.Additional audit evidence may be obtained, for example, by extending tests of controls over the remaining period or testing the entityâ€™s monitoring of controls. 17 PSA 330 (Redrafted) Using audit evidence obtained in previous audits (Ref: Para. 13) A35. In certain circumstances, audit evidence obtained from previous audits may provide audit evidence where the auditor performs audit procedures to establish its continuing relevance. For example, in performing a previous audit, the auditor may have determined that an automated control was functioning as intended.The auditor may obtain audit evidence to determine whether changes to the automated control have been made that affect its continued effective functioning through, for example, inquiries of management and the inspection of logs to indicate what controls have been changed. Consideration of audit evidence about these changes may support either increasing or decreasing the expected audit evidence to be obtained in the current period about the operating effectiveness of the controls. Controls that have changed from previous audits (Ref: Para. 4(a)) A36. Changes may affect the relevance of the audit evidence obtained in previous audits such that there may no longer be a basis for continued reliance. For example, changes in a system that enable an entity to receive a new report from the system probably do not affect the relevance of audit evidence from a previous audit; however, a change that causes data to be accumulated or calculated differently does affect it. Controls that have not changed from previous audits (Ref: Para. 14(b)) A37.The auditorâ€™s decision on whether to rely on audit evidence obtained in previous audits for controls that: (a) Have not changed since they were last tested; and (b) Are not controls that mitigate a significant risk, is a matter of professional judgment. In addition, the length of time between retesting such controls is also a matter of professional judgment, but is required by paragraph 14(b) to be at least once in every third year. A38. In general, the higher the risk of material misstatement, or the greater the reliance on controls, the shorter the time period elapsed, if any, is likely to be.Factors that may decrease the period for retesting a control, or result in not relying on audit evidence obtained in previous audits at all, include the following: â€¢ A weak control environment. â€¢ Weak monitoring of controls. â€¢ A significant manual element to the relevant controls. 18 PSA 330 (Redrafted) â€¢ â€¢ Changing circumstances that indicate the need for changes in the control. â€¢ A39. Personnel changes that significantly affect the application of the control. Weak general IT-controls.When there are a number of controls for which the auditor intends to rely on audit evidence obtained in previous audits, testing some of those controls in each audit provides corroborating information about the continuing effectiveness of the control environment. This contributes to the auditorâ€™s decision about whether it is appropriate to rely on audit evidence obtained in previous audits. Evaluating the Operating Effectiveness of Controls (Ref: Para. 16-19) A40. A material misstatement detected by the auditorâ€™s procedures may indicate the existence of a material weakness in internal control.A41. The concept of effectiveness of the operation of controls recognizes that some deviations in the way controls are applied by the entity may occur. Deviations from prescribed controls may be caused by such factors as changes in key personnel, significant seasonal fluctuations in volume of transactions and human error. The detected rate of deviation, in particular in comparison with the expected rate, may indicate that the control cannot be relied on to reduce risk at the assertion level to that assessed by the auditor.Substantive Procedures (Ref: Para. 20) A42. Paragraph 20 requires the auditor to design and perform substantive procedures for each material class of transactions, account balance, and disclosure, irrespective of the assessed risks of material misstatement. This requirement reflects the facts that: (i) the auditorâ€™s assessment of risk is judgmental and so may not identify all risks of material misstatement; and (ii) there are inherent limitations to internal control, including management override.Nature and Extent of Substantive Procedures A43. Depending on the circumstances, the auditor may determine that: â€¢ Performing only substantive analytical procedures will be sufficient to reduce audit risk to an acceptably low level. For example, where the auditorâ€™s assessment of risk is supported by audit evidence from tests of controls. â€¢ Only tests of details are appropriate. â€¢ A combination of substantive analytical procedures and tests of details are most responsive to the assessed risks. 19 PSA 330 (Redrafted) A44.Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time. PSA 520, â€œAnalytical Proceduresâ€ establishes requirements and provides guidance on the application of analytical procedures during an audit. A45. The nature of the risk and assertion is relevant to the design of tests of details. For example, tests of details related to the existence or occurrence assertion may involve selecting from items contained in a financial statement amount and obtaining the relevant audit evidence.On the other hand, tests of details related to the completeness assertion may involve selecting from items that are expected to be included in the relevant financial statement amount and investigating whether they are included. A46. Because the assessment of the risk of material misstatement takes account of internal control, the extent of substantive procedures may need to be increased when the results from tests of controls are unsatisfactory. However, increasing the extent of an audit procedure is appropriate only if the audit procedure itself is relevant to the specific risk. A47.In designing tests of details, the extent of testing is ordinarily thought of in terms of the sample size. However, other matters are also relevant, including whether it is more effective to use other selective means of testing. See PSA 530 for additional guidance. Substantive Procedures Related to the Financial Statement Closing Process (Ref: Para. 21(b)) A48. The nature, and also the extent, of the auditorâ€™s examination of journal entries and other adjustments depends on the nature and complexity of the entityâ€™s financial reporting process and the related risks of material misstatement.Substantive Procedures Responsive to Significant Risks (Ref: Para. 22) A49. Paragraph 22 of this PSA requires the auditor to perform substantive procedures that are specifically responsive to risks the auditor has determined to be significant risks. For example, if the auditor identifies that management is under pressure to meet earnings expectations, there may be a risk that management is inflating sales by improperly recognizing revenue related to sales agreements with terms that preclude revenue recognition or by invoicing sales before shipment.In these circumstances, the auditor may, for example, design external confirmations not only to confirm outstanding amounts, but also to confirm the details of the sales agreements, including date, any rights of return and delivery terms. In addition, the auditor may find it effective to supplement such external confirmations with inquiries of non-financial personnel in the entity regarding any changes in sales agreements and delivery terms. Substantive procedures related to 20 PSA 330 (Redrafted) ignificant risks are most often designed to obtain audit evidence with high reliability. Timing of Substantive Procedures (Ref: Para. 23-24) A50. In most cases, audit evidence from a previous auditâ€™s substantive procedures provides little or no audit evidence for the current period. There are, however, exceptions, e. g. , a legal opinion obtained in a previous audit related to the structure of a securitization to which no changes have occurred, may be relevant in the current period.In such cases, it may be appropriate to use audit evidence from a previous auditâ€™s substantive procedures if that evidence and the related subject matter have not fundamentally changed, and audit procedures have been performed during the current period to establish its continuing relevance. Using audit evidence obtained during an interim period (Ref: Para. 23) A51. In some circumstances, the auditor may determine that it is effective to perform substantive procedures at an interim date, and to compare and reconcile information concerning the balance at the period end with the comparable information at the interim date to: a) Identify amounts that appear unusual, (b) Investigate any such amounts, and (c) Perform substantive analytical procedures or tests of details to test the intervening period. A52. Performing substantive procedures at an interim date without undertaking additional procedures at a later date increases the risk that the auditor will not detect misstatements that may exist at the period end. This risk increases as the remaining period is lengthened. Factors such as the following may influence whether to perform substantive procedures at an interim date: â€¢The control environment and other relevant controls. â€¢ The availability at a later date of information necessary for the auditorâ€™s procedures. â€¢ The purpose of the substantive procedure. â€¢ The assessed risk of material misstatement. â€¢ The nature of the class of transactions or account balance and related assertions. 21 PSA 330 (Redrafted) â€¢ A53. The ability of the auditor to perform appropriate substantive procedures or substantive procedures combined with tests of controls to cover the remaining period in order to reduce the risk that misstatements that may exist at the period end will not be detected.Factors such as the following may influence whether to perform substantive analytical procedures with respect to the period between the interim date and the period end: â€¢ Whether the period end balances of the particular classes of transactions or account balances are reasonably predictable with respect to amount, relative significance, and composition. â€¢ Whether the entityâ€™s procedures for analyzing and adjusting such classes of transactions or account balances at interim dates and for establishing proper accounting cutoffs are appropriate. Whether the information system relevant to financial reporting will provide information concerning the balances at the period end and the transactions in the remaining period that is sufficient to permit investigation of: (a) Significant unusual transactions or entries (including those at or near the period end), (b) Other causes of significant fluctuations, or expected fluctuations that did not occur, and (c) Changes in the composition of the classes of transactions or account balances.Misstatements detected at an interim date (Ref: Para. 24) A54. When the auditor concludes that the planned nature, timing, or extent of substantive procedures covering the remaining period need to be modified as a result of unexpected misstatements detected at an interim date, such modification may include extending or repeating the procedures performed at the interim date at the period end. Adequacy of Presentation and Disclosure (Ref: Para. 25) A55.Evaluating the overall presentation of the financial statements, including the related disclosures, relates to whether the individual financial statements are presented in a manner that reflects the appropriate classification and description of financial information, and the form, arrangement, and content of the financial statements and their appended notes. This includes, for example, the terminology 22 PSA 330 (Redrafted) used, the amount of detail given, the classification of items in the statements, and the bases of amounts set forth. Evaluating the Sufficiency and Appropriateness of Audit Evidence (Ref: Para. 6-28) A56. An audit of financial statements is a cumulative and iterative process. As the auditor performs planned audit procedures, the audit evidence obtained may cause the auditor to modify the nature, timing, or extent of other planned audit procedures. Information may come to the auditorâ€™s attention that differs significantly from the information on which the risk assessment was based. For example, â€¢ The extent of misstatements that the auditor detects by performing substantive procedures may alter the auditorâ€™s judgment about the risk assessments and may indicate a material weakness in internal control. The auditor may become aware of discrepancies in accounting records, or conflicting or missing evidence. â€¢ Analytical procedures performed at the overall review stage of the audit may indicate a previously unrecognized risk of material misstatement. In such circumstances, the auditor may need to reevaluate the planned audit procedures, based on the revised consideration of assessed risks for all or some of the classes of transactions, account balances, or disclosures and related assertions. PSA 315 contains further guidance on revising the auditorâ€™s risk assessment. A57.The auditor cannot assume that an instance of fraud or error is an isolated occurrence. Therefore, the consideration of how the detection of a misstatement affects the assessed risks of material misstatement is important in determining whether the assessment remains appropriate. A58. The auditorâ€™s judgment as to what constitutes sufficient appropriate audit evidence is influenced by such factors as the following: â€¢ Significance of the potential misstatement in the assertion and the likelihood of its having a material effect, individually or aggregated with other potential misstatements, on the financial statements. Effectiveness of managementâ€™s responses and controls to address the risks. â€¢ Experience gained during previous audits with respect to similar potential misstatements. â€¢ Results of audit procedures performed, including whether such audit procedures identified specific instances of fraud or error. 23 PSA 330 (Redrafted) â€¢ Source and reliability of the available information. â€¢ Persuasiveness of the audit evidence. â€¢ Understanding of the entity and its environment, including the entityâ€™s internal control. Documentation (Ref: Para. 29) A59.The form and extent of audit documentation is a matter of professional judgment, and is influenced by the nature, size and complexity of the entity and its internal control, availability of information from the entity and the audit methodology and technology used in the audit. Acknowledgment This PSA is based on International Standard on Auditing 330 (Redrafted), â€œThe Auditorâ€™s Responses to Assessed Risks,â€ issued by the International Auditing and Assurance Standards Board. There are no significant differences between this PSA 330 (Redrafted) and ISA 330 (Redrafted). 4 PSA 330 (Redrafted) This PSA 330 (Redrafted), â€œThe Auditorâ€™s Responses to Assessed Risks,â€ was unanimously approved for adoption on January 29, 2007 by the members of the Auditing and Assurance Standards Council. Benjamin R. Punongbayan, Chairman Felicidad A. Abad Antonio P. Acyatan Erwin Vincent G. Alcala Froilan G. Ampil David L. Balangue Ma. Gracia Casals-Diaz Amorsonia B. Escarda Manuel O. Faustino Eliseo A. Fernandez Nestorio C. Roraldo Joaquin P. Tolentino Editha O. Tuason Jaime E. Ysmael 25
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