Assigned to an Account
► Lesson 3
Learning objectives
► Identify risks and related assertions for
significant accounts
► Recognize the methods of obtaining
audit evidence: Inquiry, Observation,
Inspection, Reperformance,
Recalculation, Confirmation, and Data
analysis
► Recognize how risks impacts the audit
strategy
Page 2 Lesson 3: Assigned to an Account
Videoscribe L3: Assessing risks of the trail
Page 3 Lesson 3: Assigned to an Account
Assessing risks of the trail video: Key points
► Identify and assess risks phase of the
audit
► Risks identified drive the nature, timing
and extent of audit procedures
► These risk assessments will be
performed by your audit executives
Page 4 Lesson 3: Assigned to an Account
Activity 1: You’ve received an email
Hi there!
Page 5 Lesson 3: Assigned to an Account
Activity 1: Key points
► Prioritize the tasks that were given
► It’s important to understand the risks
before you begin audit procedures
► When in doubt, ask your senior
Page 6 Lesson 3: Assigned to an Account
Activity 2: Technical topics
► Technical topics are on-demand learning
content that delivers basic accounting
and auditing knowledge over specific
accounts and topics, such as Cash,
Payroll, Prepayment, Trade Payables and
PPE, among others
Page 7 Lesson 3: Assigned to an Account
Activity 2: Key points
► PPE Basics
► What’s included?
► Where is it located on the balance sheet?
► Tech Topics
► On-demand
► Enables you to be self-starting
Page 8 Lesson 3: Assigned to an Account
Activity 3: Expedition risks
Page 9 Lesson 3: Assigned to an Account
Activity 3: Expedition risks
► Open PM 3.1 in the ILP
► You will have 5 minutes to brainstorm
risks associated with embarking on an
expedition.
► You will then present your risks back to
the class
Page 10 Lesson 3: Assigned to an Account
Activity 3: Key points
► You were able to identify risks
associated with embarking on an
expedition
► Identifying these risks will help you
properly prepare for the journey
Page 11 Lesson 3: Assigned to an Account
Activity 4: PPE risks
Page 12 Lesson 3: Assigned to an Account
Activity 4: Instructions
► Open PM 3.2 and read the instructions
► Work in teams
► You have ten minutes to complete this
activity
Page 13 Lesson 3: Assigned to an Account
Account assertions
Page 14 Lesson 3: Assigned to an Account
Expedition risks
► The trail depicted on the map actually exists
► All of the obstacles on the trail are included on the trail map
► The map presents and discloses those obstacles fairly and accurately
► The water stations along the trail exist and are in the locations represented on
the map
Lesson 5: Lesson 8:
Confirm our Lesson 7: The Summit
Understanding of 5 Substantive
Procedures
a SCOT
7 8
4
Lesson 4: 6
Lesson 1: Obtain an
What is an audit Understanding of a Lesson 6:
1 SCOT Tests of Controls
3
Lesson 2:
2 Assigned to a Lesson 3:
client Assigned to an
account
Base camp
Page 15 Lesson 3: Assigned to an Account
Account assertions
Assertions
Claims made by
management
regarding the Assertions Account Assertions
financial statements
Assertions
Page 16 Lesson 3: Assigned to an Account
Statement of financial position (balance
sheet) account assertions
Statement of Financial Position
Income Statement Assertions
(or Balance Sheet) Assertions
Existence Occurrence
Completeness Completeness
Rights & Obligations
Valuation Measurement
Presentation & Disclosure Presentation & Disclosure
Page 17 Lesson 3: Assigned to an Account
Accounts payable account assertions
Existence
Presentation &
Completeness
Disclosure
Accounts
Payable
Rights &
Valuation
Obligations
Page 18 Lesson 3: Assigned to an Account
Income statement account assertions
Statement of Financial Position
Income Statement Assertions
(or Balance Sheet) Assertions
Existence Occurrence
Completeness Completeness
Rights & Obligations
Valuation Measurement
Presentation & Disclosure Presentation & Disclosure
Page 19 Lesson 3: Assigned to an Account
Sales account assertions
Occurrence
Presentation &
Disclosure Sales Completeness
Measurement
Page 20 Lesson 3: Assigned to an Account
Assertions: Key points
► Assertions play a key role in our risk
assessment process initially performed
► You should understand the assertions
applicable to each significant account
► This will enable you to ask better
questions
Page 21 Lesson 3: Assigned to an Account
Activity 5: Match risks and assertions
Page 22 Lesson 3: Assigned to an Account
Audit procedures
Page 23 Lesson 3: Assigned to an Account
Auditing toolkit
Recalculation Observation Reperformance
Data analysis Inspection Confirmation Inquiry
Page 24 Lesson 3: Assigned to an Account
Auditing toolkit
Cash Account Assertions Audit Tool
Existence ?
Completeness
Rights & Obligations
Valuation
Presentation & Disclosure
Page 25 Lesson 3: Assigned to an Account
Auditing toolkit
Cash Account Assertions Audit Tool
Existence Confirm
Completeness
Rights & Obligations
Valuation
Presentation & Disclosure
Page 26 Lesson 3: Assigned to an Account
Auditing toolkit
Cash Account Assertions Audit Tool
Existence Confirm
Completeness
Rights & Obligations
Valuation ?
Presentation & Disclosure
Page 27 Lesson 3: Assigned to an Account
Auditing toolkit
Cash Account Assertions Audit Tool
Existence Confirm
Completeness
Rights & Obligations
Valuation Inspection & Recalculation
Presentation & Disclosure
Page 28 Lesson 3: Assigned to an Account
Audit evidence and audit toolkit: Key points
► Use the audit procedures in your
auditing toolkit to obtain sufficient and
appropriate audit evidence
► Use the audit procedure that best
responds to the assertion and risk you
are responding to
Page 29 Lesson 3: Assigned to an Account
Activity 6: Match assertions to procedures
Page 30 Lesson 3: Assigned to an Account
Combined Risk Assessment (CRA)
Page 31 Lesson 3: Assigned to an Account
Combined Risk Assessment (CRA)
CONTROLLED BY ENTITY
Audit Inherent Control Detection
risk risk risk risk
CRA IR CR
Page 32 Lesson 3: Assigned to an Account
Inherent risk
For each relevant assertion, we determine the CRA:
CRA IR CR
► Lower
► Higher
Page 33 Lesson 3: Assigned to an Account
Control risk
For each relevant assertion, we determine the CRA:
CRA IR CR
► Lower ► Rely
► Higher ► Not-rely
Page 34 Lesson 3: Assigned to an Account
Combination of procedures
Level of
confidence
95%
Assurance from
other substantive
procedures
Combination of procedures
Assurance from
primary
substantive
Assurance from procedures
tests of control
Minimal Low Moderate High
Rely on controls Not rely on controls
Combined Risk Assessment
Page 35 Lesson 3: Assigned to an Account
Combined Risk Assessment (CRA)
Combined Risk Assessment
Control risk
Not rely on
Rely on controls
controls
Lower Minimal Moderate
Inherent risk
Higher Low High
Significant risk1 Special audit consideration
1
Significant risks are inherent risks with a higher likelihood of occurrence and a higher magnitude of potential
misstatement. We give special audit considerations to significant risks.
Page 36 Lesson 3: Assigned to an Account
CRA: Key points
► The CRA is simply the Audit Risk Model
applied at the assertion level
► Inherent risk assessment: Higher or Lower
► Control risk assessment: Rely or Not-rely
► The higher the risk on the CRA table, the
more testing we must do to reach our 95%
confidence level that the financial statements
are free of material misstatement
► The CRA table is included in your guidebook
Page 37 Lesson 3: Assigned to an Account
CRAs: Cash account
Cash Account Assertions
Existence
Completeness
Rights & Obligations
Presentation & Disclosure
Page 38 Lesson 3: Assigned to an Account
CRAs: Cash account
Cash Account Assertions Inherent Risk
Existence Lower
Completeness Higher
Rights & Obligations Lower
Presentation & Disclosure Lower
Page 39 Lesson 3: Assigned to an Account
CRAs: Cash account
Cash Account Assertions Inherent Risk Control Risk
Existence Lower Rely
Completeness Higher Rely
Rights & Obligations Lower Rely
Presentation & Disclosure Lower Rely
Page 40 Lesson 3: Assigned to an Account
CRAs: Cash account
Cash Account Assertions Inherent Risk Control Risk CRA
Existence Lower Rely ?
Completeness Higher Rely ?
Rights & Obligations Lower Rely ?
Presentation & Disclosure Lower Rely ?
Page 41 Lesson 3: Assigned to an Account
CRAs: Cash account
Cash Account Assertions Inherent Risk Control Risk CRA
Existence Lower Rely Minimal
Completeness Higher Rely Low
Rights & Obligations Lower Rely Minimal
Presentation & Disclosure Lower Rely Minimal
Page 42 Lesson 3: Assigned to an Account
CRAs: Cash account
Cash Account Assertions Inherent Risk Control Risk CRA
Existence Lower ? ?
Completeness Higher ? ?
Rights & Obligations Lower ? ?
Presentation & Disclosure Lower ? ?
Page 43 Lesson 3: Assigned to an Account
CRAs: Cash account
Cash Account Assertions Inherent Risk Control Risk CRA
Existence Lower Not-rely Moderate
Completeness Higher Not-rely High
Rights & Obligations Lower Not-rely Moderate
Presentation & Disclosure Lower Not-rely Moderate
Page 44 Lesson 3: Assigned to an Account
Audit evidence
Nature
CRA Audit
Procedures Evidence
Extent Timing
Page 45 Lesson 3: Assigned to an Account
Audit evidence bucket model
Lower IR Risks within account/assertion Higher IR
The size of the bucket for each assertion corresponds to the assessed level of inherent risk. The
greater the risk, the larger the bucket and more evidence is required to address the risk and fill
the bucket.
Page 46 Lesson 3: Assigned to an Account
Audit evidence bucket model
How much evidence is needed?
Evidence obtained from Evidence obtained from Evidence obtained from
substantive procedures substantive procedures substantive procedures
Evidence obtained from
Evidence obtained from tests Evidence obtained from tests substantive procedures
of controls of controls
Minimal Low Moderate High
The size of the bucket is driven by the inherent risk. How the bucket begins can be filled, however, is
driven by a decision as to whether or not we test and rely on controls.
Page 47 Lesson 3: Assigned to an Account
Quality of audit evidence
Source
How was it obtained?
Originals?
Page 48 Lesson 3: Assigned to an Account
Key points
► Your IR drives the size of your bucket of
audit evidence
► You fill your evidence bucket by
obtaining sufficient and appropriate
evidence during the performance of your
audit procedures
► There is a hierarchy of quality of audit
evidence, including
► Original vs. Copies
► Third party vs. Internal Source
► Directly obtained or indirectly obtained
Page 49 Lesson 3: Assigned to an Account
Activity 7: Update budget
► Objective: Update our budget before
proceeding to the next task you’ve been
assigned
► Time: 5 minutes
► Instructions:
► Open the saved budget (HO 2.6 Budget to
Actual) from Lesson 2
► Find the Lesson 3 line items and input the
amount of time incurred to complete the
listed activities
► Update the budget
► Save the update to your desktop
Page 50 Lesson 3: Assigned to an Account
Activity 8: Mental model shift
► Objective: Raise your awareness of
your current mental models and
help you move along the continuum
in areas
► Time: 15 minutes
► Instructions:
► Put your name or initials on the sticky
note
► Place a sticky note on each Mental
Model continuum line showing where
you think you are right now
Page 51 Lesson 3: Assigned to an Account
Mental model shift self-assessment activity
► Take 5 minutes to reflect on the Mental Model Shifts that we are
trying to accomplish
► Have you moved?
Page 52 Lesson 3: Assigned to an Account
Summary
► Determined the nature of the PP&E account, including the
relevant risks and assertions
► Determined the interrelation between audit risk model and the
combined risk assessments
► Determined the audit tools you need to respond to audit
assertions
► Reviewed the CRA for the PP&E account of Summit
Equipment
Page 53 Lesson 3: Assigned to an Account
Conclusion
Page 54 Lesson 3: Assigned to an Account
