ISA Guide Orientation Slides

ISA Guide—OrientationIFAC SMP CommitteeAn Introduction to the Guide toUsing ISAs in the Audits ofSmall- and Medium-SizedEntitiesMay 2012 Page 1

ISA Guide—OrientationContents • International Standards on Auditing (ISAs) • The ISA Guide – Introduction – Structure and Content – Ethics, ISAs, and Quality Control – Phase l—Risk Assessment – Phase ll—Risk Response – Phase lll—Reporting • IFAC Resources Page 2

The ISAs• A suite of standards applicable to all audits – Can be applied in a manner proportionate with the size and complexity of any entity – Designed to achieve reasonable assurance on all audits, regardless of the size and complexity of an entity – Recognize that the characteristics of SMEs differ significantly from those of larger, more complex entities Page 3

The ISA GuideIntroduction • Developed by the IFAC SMP Committee • Responds to a need for practical support in implementing the ISAs on SME audits • Helps firms apply the ISAs proportionately and efficiently on SME audits Although SMPs are a significant user group, the ISA Guide is intended to help all practitioners implement ISAs on SME audits. Page 4

The ISA GuideIntroduction Page 5

The ISA GuideIntroduction • Provides practical guidance, but is no substitute for: – Reading and understanding the ISAs (itself, a requirement of the ISAs) – Using professional judgment • Helps develop a deeper understanding of an audit conducted in compliance with the ISAs, for example as – A basis for training and education – Reference material • Refer to the Companion Manual at www.ifac.org/publications-resources/companion-manual-0 for more ways to use the ISA Guide Page 6

The ISA GuideStructure and Content • Volume 1 – Fundamental concepts of a risk- based audit in conformance with the ISAs Page 7

The ISA GuideStructure and Content • Volume 2 – Practical guidance on performing SME audits – Includes two illustrative case studies, one of an SME audit and one of a micro- entity audit Page 8

The ISA GuideSchematic Both volumes explain and illustrate the three phases of performing a risk-based audit—Risk Assessment, Risk Response, and Reporting Page 9

The ISA GuideCase Studies Case Study A— Case Study B— Dephta Kumar Business Furniture Furniture manufacturing manufacturing Sales 1.5 million 230,000 Staff 15 2 + owner Sample audit Generally Simple memos to documentation structured file Page 10

The ISA GuideEthics, ISAs, and Quality Control• Firm level objective (ISQC 1.11): to establish and maintain a system of quality control to provide the firm with reasonable assurance that: – (a) The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and – (b) Reports issued by the firm or engagement partners are appropriate in the circumstances.• Engagement level objective (ISA 220.6): to implement quality control procedures at the engagement level that provide the auditor with reasonable assurance that: – (a) The audit complies with professional standards and applicable legal and regulatory requirements; and – (b) The auditors report issued is appropriate in the circumstances. Page 11

The ISA Guide Phase I – Risk Assessment Page 12

Phase I—Risk AssessmentRisk Assessment—Overview Page 13

Phase I—Risk AssessmentPerforming Preliminary Engagement Activities Page 14

Phase I—Risk AssessmentPlanning the Audit Page 15

Phase I—Risk AssessmentRisk—Overview• Types of risk – Business risk – Fraud risk• Sources of risk• Components of risk – Inherent risk – Control risk• Procedures for identifying and assessing risk• Significant risks• Risk and internal control Page 16

Phase I—Risk AssessmentConcluding on the Risk Assessment Phase Page 17

The ISA Guide Phase II – Risk Response Page 18

Phase II—Risk ResponseRisk Response—Overview Page 19

The ISA Guide Phase III – Reporting Page 22

Phase III—ReportingReporting—Overview Page 23

Phase III—ReportingReporting—Overview Page 24

IFAC Resources Page 25

SMP Committee Home Pagewww.ifac.org/smp Access ISA Guide and Implementation Resources from here Page 26

IFAC Resources• Guide to Using International Standards on Auditing in the Audits of Small- and Medium-Sized Entities – www.ifac.org/publications-resources/guide-using-international-standards- auditing-audits-small-and-medium-sized-en• For the clarified ISAs, ISQC 1, and related implementation resources, see IAASB Clarity Center: – www.ifac.org/auditing-assurance/clarity-center• Tips for Cost-Effective ISA Application article – www.ifac.org/publications-resources/tips-cost-effective-isa-application Page 27

IFAC Resources• Policy Position Paper 2, Promoting a Single Set of Auditing Standards for All Audits, Including of Small- and Medium-Sized Entities – www.ifac.org/publications-resources/single-set-auditing-standards-audits- small-and-medium-sized-entities• Links to other implementation resources – www.ifac.org/relevant-links-implementation Page 28

Copyright © May 2012 by the International Federation of Accountants (IFAC). Allrights reserved. Used with permission of IFAC. Contact permissions@ifac.orgfor permission to reproduce, store, or transmit this document. www.ifac.org/SMP

ISA Guide Orientation Slides

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