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Lecture notes, cheat sheets
International Auditing Standards. Cheat sheet: briefly, the most important
Directory / Lecture notes, cheat sheets Table of contents
1. THE ROLE OF AUDITORS IN ENSURING THE RELIABILITY OF ACCOUNTING REPORTS Audit - one of the young and promising business sectors in modern Russia. The beginning of our audit activity dates back to 1992. Even then, there was a need and a need to provide users of financial information with data from an independent audit and assessment of the financial statements of enterprises and organizations. Translated from english audit It's a check, a revision. That is, at its core, audit and revision are varieties of accounting and other checks. It is the difference in the goals and objectives of the audit that largely determines the difference between an audit and revisions. Internal checks exist in various countries of the world for many decades. In accordance with the law, the auditor was an authorized person of the shareholders. However, gradually, over time, a tendency to seek to assert the independence of auditors (auditors) from the enterprises they inspect, to their professional association, and to expand the scope of audit services, developed. Currently, audit is a separate area of business activity of professional auditors for the implementation of independent audits of financial statements. Auditors may also provide additional services related to consulting on accounting and tax legislation. In the Russian Federation legal framework for auditing began to take shape in 1993 with the approval of the Provisional Rules for Auditing in the Russian Federation. Currently, the Federal Law "On Auditing Activities" of 2001 and 38 Rules (Standards) of Auditing Activities to it (PSAD), which were developed from 1996 to 2000, are in force. The role of audits in ensuring the reliability of financial statements is due to their independence from the subject of the audit and the management of the audited organization, the opportunity to obtain an independent, and therefore more objective opinion on the financial statements of the audited enterprises. The factor of independence is extremely important, since it is he who allows you to provide an impartial and unbiased opinion of auditors on the state of the client's financial statements. Among the Russian auditing standards there is no separate document regulating the ethical norms and relationships of professional accountants, but in the PSAD "Goals and basic principles related to the audit of financial statements" there is a section devoted to the consideration of compliance with professional ethical principles of auditing. The responsibility of the auditor and the importance of his opinion in assessing the state of financial statements is related to the role that financial statements play in modern financial and economic life, primarily for commercial enterprises and corporations, as well as others. This category of enterprises and organizations stands out from the general mass, since the correct determination of their financial indicators is of paramount importance not only for themselves, but also for public sector enterprises, for which they are financial donors. 2. RELATIONSHIP OF FINANCIAL REPORTING STANDARDS AND AUDIT STANDARDS Modern financial statements are prepared for the purpose of presenting them to external users. external users, which include investors, creditors, the state and the public, are interested in the reliability of the financial statements of the enterprises they are interested in, since this determines their prospective and current financial position. How the audit is organized, how it is planned and executed, with the help of what methods and procedures it is carried out, largely depends on it. reliability and credibility. These reasons served as the basis for the creation and development of auditing standards in different countries and, ultimately, for the creation of the ISA as an international system that absorbed all the most valuable in the field of auditing in the modern world. Since the audit information base is primarily financial reporting, the connection between auditing standards and financial accounting and reporting standards is obvious. Currently, Russia is one of those countries in which there is national legislation in the field of audit in the form of the already mentioned law on auditing and separate standards that address specific aspects of auditing. If characterize the role of ISAs in the development of auditing and talk about their main purpose, we can single out the following aspects: 1) ISAs are used in the audit of financial statements, as well as with the necessary adaptation and other related information; 2) ISAs contain basic principles, procedures and guidelines. These principles and procedures are to be interpreted in the light of the explanatory material which guides their application; 3) ISAs apply only to the essential aspects of the audit; 4) ISAs do not supersede national standards. If national standards do not contradict ISA, then this means their automatic compliance. If national standards contradict ISA, then, in accordance with the constitution of the IFAC (International Federation of Accountants), member countries must take all necessary measures to converge with ISA and eliminate contradictions. Member countries of the International Federation of Accountants (IFAC) may adopt ISAs as their national standards. The connection of auditing standards with financial reporting standards is not only a general rule, but can also be traced when considering individual standards. For example, the ISA 120, Fundamental Principles of ISAs, is linked to the entire ISA system and the entire IFRS system; ISA 320 Audit Materiality and ISA 570 Going Concern relate to the IFRS Financial Reporting Framework and IFRS 1 Presentation of Financial Statements; ISA 550 Related Parties is based on IAS 24 Related Party Disclosures; ISA 560 Subsequent Events is based on IAS 10, Contingencies and Events After the Balance Sheet Date. 3. ACTIVITIES OF THE INTERNATIONAL FEDERATION OF ACCOUNTANTS. GENERAL STRUCTURE OF ISA The work on the formation of international financial reporting and auditing standards is organized by International Federation of Accountants - IFAC (IFAC), which was established in 1977. This organization operates on the basis of the constitution. The constitution of the MFB states that its primary goal - development of the accounting profession on the basis of harmonized standards and provision of quality services to society in the field of accounting and auditing. To this end, the IFAC Council has established Committee on International Auditing Practices (KMAP), which should be engaged in the development of standards and regulations in the field of financial audit and related services. To provide audit services on an international scale, the IFAC has created an association called the "Forum of Firms". This company includes representatives of 23 transnational audit firms. The purpose of the "Forum of Firms" is to oversee and develop a new international regulatory regime for auditing through a new global quality standard based on existing ISAs and the Code of Ethics. To accelerate the work on the development of the ISA, the IFAC Council finances the work carried out by the CMAP. The most important areas of this work are: 1) revision of individual ISAs and Regulations on International Auditing Practice (PMAP); 2) development of standards for audit assurance services to reflect the transition of audit practice from "confirmation" to "guaranteeing"; 3) revision of recommendations for audits of commercial banks; 4) ISA Publication on Derivatives. International Standards on Auditing (ISA) - these are documents that formulate uniform requirements, subject to which an appropriate level of quality of the audit and related services is ensured. ISAs are intended for the audit of financial statements, as well as related services that are carried out during the audit. ISAs contain: basic principles; necessary procedures and guidelines; recommendations on the application of the principles and procedures. ISAs are a collection of documents that include: an introduction, a Code of Ethics for Professional Accountants, a glossary of terms and the International Standards on Auditing itself, which consist of 10 sections. These 10 sections clearly structure a financial audit by major aspects, focusing on the procedure as the most important element of the audit. ISAs are classified into the following main sections: I. Introductory aspects. II. Duties. III. Planning. IV. Internal control. V. audit evidence. VI. Use of the work of third parties. VII. Audit findings and preparation of reports. VIII. specialized areas. IX. Accompanying services. X. Regulations on International Auditing Practice (PMAP). ISAs cover all the main currently existing aspects of financial audit. It presents systematically and in the appropriate sequence all audit procedures, the composition of audit services, specific areas of audit and the procedure for compiling audit reports. 4. CONTENT AND PURPOSE OF THE MAIN SECTIONS OF ISA Introductory part, including a preface, The Code of Ethics for Professional Accountants and Glossary is intended to reveal the main conceptual foundations of the audit, as well as to promote a better understanding of the tasks and methods of work of the CMAP and all the main bodies that are involved in the development and development of the ISA system. Glossary contains more than 100 terms and is actually composed of terms and definitions that are included in individual specific ISAs. The main purpose of the glossary is a uniform interpretation by users of all terms and definitions applicable in the ISA. First section contains ISAs, which have no analogues in Russian auditing standards, and includes two standards that characterize all audit procedures, their list, types of audit services, basic principles and concepts on which ISAs are based. В section "Responsibilities" ISAs are combined, which disclose all the responsibilities of auditors and the management of the audited entity during the audit. В third and fourth sections ISAs include standards united by the problems of planning the organization of an internal control system. They are devoted to the choice of an audit strategy, studying the specifics of the client's activities, determining the level of materiality and audit risks. Fifth and sixth sections include standards on obtaining audit evidence using audit sampling, analytical procedures, etc., not only by the auditor, but also with the involvement of third parties. Seventh and eighth sections ISAs combine standards that are devoted to the rules for compiling audit reports (conclusions). В ninth section ISAs are presented that reveal the essence, goals and objectives of related services during the audit, which are classified in ISA 120 "Basic Principles of ISAs". In the last tenth section merged "Regulations on International Auditing Practice" (PMAP). They include various documents on audit practice in various organizations and specific audit issues. PMAPs provide auditors with additional information and practical guidance by detailing individual sections of the relevant standards. 5. CHARACTERISTICS OF THE MAIN DIFFERENCES BETWEEN ISA AND RUSSIAN AUDIT STANDARDS The current system of auditing standards in Russia testifies to significant differences from ISA (composition, list of documents, their classification and internal structure). Comparison of the Russian rules (standards) of audit activity (PSAD) with ISA allows us to highlight the following groups: 1) PSAD, coinciding in content with ISA; 2) PSAD, which in their essential content aspects differ from the analogue of ISA; 3) PSAD and MSA, which have no analogues. The purpose of developing PSAD - preparation of a system of documents that are based on ISA. The main reasons for the discrepancy between PSAD and ISA: differences in Russian legislation, which forms PSAD (accounting, tax, etc.); modification and revision of the ISAs themselves. PSADs that do not comply with ISAs include the following: 1. Written information of the auditor to the management of the economic entity based on the results of the audit. 2. Auditor education. 3. Rights and obligations of audit organizations and audited economic entities. 4. Requirements for internal audit standards of the organization. 5. Tax audit and other related services on tax issues. Consolidation with tax authorities. The main reasons for the mismatch of standards1. Concerning "Education of the auditor" ISA does not have a single standard, but the International ISA Committee (IFAC) produces separate guidance and regulatory materials. 2. Regarding the "Letter to the management" Russian developers have a clearly motivated opinion that such a standard is necessary, since national auditing standards usually provide for the availability of one form or another of a detailed report by the auditor to the management of the subject. 3. Regarding PSAD "Rights and obligations of the audit organization" there was an opinion as about the document, which, obviously, is lower in its level than the standard. This view may lead to the abolition of this standard in the future. 4. "Requirements for internal audit" - in foreign practice, the preparation of internal standards is the work of an audit firm. 5. PSAD "Tax audit and other related services on tax issues". Tax audits or tax audits are inherently a separate area of audit and should not be combined with financial audit, in order to improve which ISAs are being developed. This separation is due to the fact that ISAs are based on financial accounting and reporting standards - IFRS. The tax audit should be based on tax legislation, which, in accordance with IFRS and the international approach in general, is a line of business separate from financial accounting and auditing. The inclusion of the tax audit standard in the Russian PSAD is primarily due to the currently dominant role of tax accounting and tax legislation in Russia compared to other areas of activity and the inclusion of tax requirements in various financial and accounting regulations. 6. COMPARISON OF ISA WITH RUSSIAN AUDIT STANDARDS (PSAD) FOR AVAILABILITY AND COMPLIANCE Next to the ISA, the names of the Russian PSADs corresponding to them are in bold type. Introductory aspects (no analogues in Russia): 100 Assurance tasks; 120 Basic principles of ISA. Duties200 The objective and general principles governing an audit of financial statements are Objectives and basic principles related to the audit of financial statements; 210 Terms of audit engagements - Letter - an obligation of the audit organization on consent to conduct an audit; 220 Quality control of audit work - Intracompany audit quality control; 230 Documentation - Audit documentation; 240 The auditor's responsibility to address fraud and error in an audit of financial statements - The actions of the auditor in identifying misstatements in financial statements; 240A Fraud and error; 250 Accounting for laws and regulations in an audit of financial statements - Verification of compliance with regulations during the audit; 26 °Communication of aspects of the audit to those charged with governance - Written information of the auditor to the management of the economic entity based on the results of the audit. Planning300 Planning - Audit planning; 310 Business Knowledge - Understanding the activities of an economic entity; 32 °Materiality in audit - Materiality and audit risk. Internal control400 Risk assessment and internal control - Study and evaluation of accounting and internal control systems during the audit; 401 Audit in the environment of computer information systems - Audit in terms of computer data processing; 402 Consideration in the audit of the characteristics of entities using service organizations. Using the work of third parties600 Using the work of another auditor - Using the work of another audit organization; 610 Review of internal audit work - Studying and using the work of internal audit; 620 Using the work of an expert - Using the work of an expert. Regulations on International Auditing Practice (PMAP)1000 Interbank confirmation procedures; 1001 Stand-alone personal computers; 1002 Online computer systems; 1003 Database systems; 1004 Relationship between banking supervisors and external auditors; 1005 Features of the audit of small enterprises - Features of the audit of small economic entities; 1006 Audit of international commercial banks. The following Russian standards are missing in ISA: 1) the procedure for concluding a contract for the provision of audit services; 2) rights and obligations of audit organizations and audited economic entities; 3) requirements for internal standards of audit organizations; 4) auditor education; 5) written information of the auditor to the management of the economic entity based on the results of the audit. 7. ORGANIZATION AND METHODOLOGY FOR CARRYING OUT AUDITS. CHARACTERISTICS OF THE CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS Despite the fact that financial audit has general principles and a single conceptual and informational basis, the differences between the types of enterprises and organizations, their specifics and sizes impose their own special requirements for audits and their organization. First of all, it is necessary to distinguish (according to the principle adopted in Russia) enterprises and organizations that are conceptually united under the name "general audit", and all other enterprises and organizations. These primarily include banks, insurance and budgetary organizations. The specificity of these areas of activity imposes its own requirements for the conduct and organization of the audit. For example, for banks and insurance companies, it is determined by the peculiarities of the organization of accounting in them, which differs from the general accounting legislation. It should be noted that such differences exist in almost all national legislation on accounting and auditing. The following general factors may also influence the organization of an audit: a) enterprise size; b) business features; at) features of the organization of the accounting and internal control system; d) features of legislation; d) features of the organizational structure and management system of the audited enterprise; All of the above and other factors affect the audit planning processes, the timing and scope of the audit, the objectives and directions of the audit, the composition of auditors, etc. The specifics of the audited enterprise may require the involvement of experts and additional analytical procedures, which may not be mandatory in other situations. Code of Ethics for Professional Accountants (CEPB) - the most important document that precedes the ISA and consists of three parts: 1. Part A - Applies to all professional accountants (PAs). 2. Part B is for professional accountants in public practice (PPA) only. 3. Part C is for hired public accountants only. The Code of Ethics defines the various categories of accountants as follows. Hired professional accountant - a professional accountant employed in industry, the public sector or in education, engaged in commercial activities. Professional Accountant - a person who is a member of an organization affiliated with IFAC, whether he is in public practice (as a sole practitioner, associate or corporation) or works in industry, business, public sector or education. Professional accountant in public practice - each partner or person in a position similar to that of a partner, and each practitioner providing professional services to a client, regardless of their functional classification (audit, taxation, consulting), as well as practicing professional accountants who perform managerial duties. This term can be applied to a firm. 8. CONTENT OF THE CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS Part A. The main ethical standards that all practicing accountants, without exception, must comply with, regardless of their status, include: 1) integrity and objectivity; 2) resolution of ethical conflicts; 3) professional competence; 4) confidentiality; 5) tax practice; 6) foreign activities; 7) disclosure of information. Part B. This part of the Code of Ethics lists the qualities of practicing professional accountants required to work in the field of independent auditing in public. These include: Independence from factors that may indicate a special interest of the accountant-auditor: - financial connection with clients and their affairs; - Appointment to a position in the company; - provision of other services; - the presence of personal family relationships; - payment for goods and services; - availability of ownership of capital; - work with former partners; - actual or potential litigation; - long-term relationship of senior staff with customers. Professional competence and responsibility in relation to persons who are not accountants. Advertisement and offer of services. The following actions and activities may be considered here: - disclosure of information; - appointments and awards; - publication of reference books, books, articles, interviews, lectures; - conducting courses, seminars; - publication of booklets, brochures, company directories and other materials; - recruitment of personnel; - production of stationery and plates with the company logo, as well as with the full name of the employees; - publication of advertisements in newspapers. Part C. This part provides guidance on professional ethics for professional accountants in industry, the public sector, education, and other categories of professional accountants. The main recommendations here are: 1) compliance with the obligations of loyalty to the employer, to their profession and their organization; 2) development of professional judgments, taking into account the opinions of colleagues and their support; 3) availability of professional competence; 4) presenting financial information in a complete, clear and honest manner and in a professional manner. There is no separate document in the Russian PSAD, but in the PSAD "Objectives and Basic Principles Related to the Audit of Accounting Statements" in the section "Fundamental Auditing Principles", the main provisions of ethical standards that must be observed by professional auditors are given as such principles. 9. INTRODUCTION TO THE AUDIT PRE-ISA This section includes ISA 100, Assurance Engagements (ASAs), as well as ISA 120, Fundamental Principles of ISAs. These standards are absent among Russian PSADs. ISA 100 is general principles of ZOU. Purpose of the standard - providing a high or medium level of assurance. Recall that these categories are absent in the Russian audit legislation. In other words, this standard generally describes all the main aspects of the auditor's activities during the audit and the main audit procedures, which are discussed in detail in the following sections and in specific standards. МСА 100 is intended for: a) descriptions of the goals and elements of the high and medium level POU; b) setting standards in the form of guidance for professional accountants in public practice to provide a high level of assurance; at) preparing the ground for the development of special standards for determining the types of POU. In working with this International Standard, it is important to understand that an assurance engagement is one that an auditor or accountant receives from a client or their management. The ISAs distinguish assurance engagements and other types of audit work in order to emphasize that the most important objective of an audit is not just to analyze and verify financial statements, but to express reasonable assurance about the reliability of these financial statements. Other assignments to verify the statements do not allow the auditor to express confidence in the reliability of the statements and pursue other goals. Such a scrupulous distinction is primarily due to the responsibility of the auditor for the results of the audit to the customer and with serious financial consequences. Purpose of ZOU - enable the accountant to evaluate or accurately measure the object of study on the basis of precise criteria in order to express his opinion. PPCs improve the reliability of the information that is provided during the audit. To main types of ZOU This primarily concerns the preparation of a report on a wide range of issues affecting financial and non-financial information. Other engagements that do not provide a high level of assurance: a) agreed procedures; b) compilation of financial and other information; at) preparation of tax returns (without conclusions) and provision of tax advice; d) management consulting and other services. The elements of an assurance engagement are primarily the existence of a tripartite relationship that includes the relationship between the professional accountant, the responsible party and the intended user. Often, the intended user and the responsible party are the same person. ZOU can be presented in the form of various financial and statistical information, systems and processes of internal control (ICS); evaluation of the behavior of the management on the implementation of regulations, work with the team. ZOU must have certain evaluation criteria (IFRS, industry criteria). If the audit is carried out in accordance with Russian legislation, it is based on Russian national accounting and reporting standards (PBU and other documents). 10. LEVELS OF CONFIDENCE The conclusions should provide the auditor with a level of assurance that meets the selected criteria. ISAs distinguish the following basic levels of confidence. 1. "Absolute Confidence". It is only rarely achieved when the evidence is exhaustive. 2. "High level of confidence." Can be achieved when a professional accountant has been able to collect sufficient evidence that meets the selected criteria. 3. "Medium Confidence". Occurs when a professional accountant can express an opinion that a subject matter is plausible under the circumstances. In accordance with paragraph 31 of SA 100, the objective of a high assurance engagement is for a professional accountant in public practice to evaluate or accurately measure the subject matter of the audit for which the other party is responsible against established appropriate criteria and draw conclusions so that provide the intended user with a high level of confidence in the reliability of data about him. When undertaking a high assurance engagement, an accountant in public practice must comply with the provisions of the Code of Ethics and, in particular, be independent. In addition, he must accept tasks only if there is another side. The subject matter of the audit can be identified and must provide the collection of audit evidence. Assuming responsibility for performing an engagement that provides a high level of assurance, the auditor must be convinced of the professionalism of the customer. He must agree with him the terms of the assignment; apply quality control policies and procedures in their work; plan the task to achieve the goals effectively; it is prudent to use professional skepticism and evaluate the necessary criteria as appropriate for assessing a particular subject. Separate ISAs are devoted to these aspects of activity in the relevant sections. As the characteristics of the suitability of the selected criteria there may be such important qualitative characteristics of financial information contained in IFRS as: - appropriateness; - reliability; - neutrality; - understandability; - completeness. 11. AUDITOR RISKS The auditor must take into account materiality and risk, and to reduce the risk must draw conclusions about the compliance of a particular subject with all the criteria. Materiality should be considered in the context of quantitative and qualitative factors, such as the relative magnitude, nature and extent of influence on the subject, the interest of users. Task Risk is the risk that the auditor may draw inappropriate conclusions. This risk consists of the following elements of audit risk (ISA 400): 1) inherent risk - the risk associated with the nature of the audit object (with the specifics of the business); 2) risk of controls - the risk that the controls used by the management of the audited company cannot prevent or correct factors influencing the subject of the audit in a timely manner; 3) detection risk - the risk that the procedures used by the auditor do not allow to detect and identify all existing aspects that affect the subject matter. Engagement risk is affected by: a) the nature and form of the object; b) the nature and form of the selected criteria; at) the nature and extent of the processes used to collect and evaluate evidence; d) sufficiency and appropriate quality of evidence. Under sufficiency and proper quality evidence is understood reliability. To the general evaluation factors The reliability of the evidence includes: 1) evidence from external (neutral) sources; 2) internal evidence influenced by appropriate controls; 3) evidence obtained directly by the auditor, and not through third parties; 4) evidence obtained in writing; 5) evidence obtained from different sources and having a consistent and consistent character. The auditor should document all aspects of the audit that are necessary to provide evidence. In addition, he must take into account the impact of subsequent events up to the date of the report in order to reflect them in the financial statements, if necessary. To work to collect and evaluate evidence, the auditor may involve an expert. At the same time, the auditor must understand aspects of the work of the expert, in order to then reflect them in the reporting. The auditor should be satisfied with the professionalism of the expert, the reasonable nature of the input data, assumptions and methods that he uses, and his choice of facts that meet the objectives of the engagement, providing a high level of assurance. Report (Conclusion) of the auditor (written or oral) must contain conclusions that provide a high level of assurance. In the report, the auditor should express a clear opinion on the specific subject matter of the audit, based on the criteria selected and the evidence gathered from the high assurance engagement. The content of the report should include: title; destination; description of the task (goal, subject); an indication defining the responsibility of the auditor; an indication of the standards on the basis of which the assignment was carried out (IFRS, national standards); indication of criteria; conclusions or a disclaimer with clear reasons; Date of preparation; name of the auditor's firm and address. 12. MCA MAIN PRINCIPLES The basic principles of MCA (MCA 120) include the basic principles of financial reporting and the basic principles of auditing. К Fundamental Financial Reporting Principles refers to: 1) that financial statements, which are the main source of information for a wide range of users, should be prepared and presented annually and meet the information needs of these users; 2) financial statements must be prepared either in accordance with IFRS or in accordance with national standards or other authoritative standards. As authoritative financial accounting standards, one can consider, for example, GAAP (generally accepted accounting principles) - the American national model of financial accounting and reporting. In Russia, recommendations on the use of GAAP as standards similar to IFRS are given by the International Center for Accounting Reform (ICAR) to Russian enterprises planning to attract foreign equity or debt capital. К basic audit principles ISA 120 refers to the distinction between the concepts of "audit" and "related services". To do this, the standard provides the main indicators that characterize the audit and related services, and the main differences between them. The differences between audit and related services are defined goals that are set for these tasks. These objectives are driven by the level of assurance that the assignments must provide. ISA allocate the following levels of confidence: 1. "Absolute confidence". It is only rarely achieved when the evidence is exhaustive. 2. "High level of confidence." Can be achieved when a professional accountant has been able to collect sufficient evidence that meets the selected criteria. 3. "Medium Confidence". Occurs when a professional accountant can express an opinion that a subject matter is plausible under the circumstances. Purpose of the audit - expressing an opinion on the compliance of the financial statements with all the main criteria for its preparation. During the course of the audit, the auditor should, in order to form an opinion on the financial statements, obtain sufficient and appropriate evidence that is necessary to reasonably express that opinion. Purpose of the review - expressing an opinion on the procedures and evidence provided that, in all essential respects, it complies with the main criteria for the preparation of financial statements. A review includes various inquiries and analytical procedures aimed at generally checking the reliability of the assertions underlying the preparation of financial statements and which are the responsibility of the management of the reviewer. During a review, the level of assurance is reduced as the number of aspects of the information it covers is reduced. Purpose of agreed procedures - statement by the auditor of opinion on the facts for revealing of which he was invited. The Agreed Procedures Report should be provided only to the parties to the audit and is used only by the auditor for the purposes of the audit. 13. DESCRIPTION OF RELATED SERVICES В ISA 120 all the main introductory aspects that characterize the audit and related services are considered. However, related services are assigned a separate section of the ISA - the ninth, which includes three standards - 910, 920 and 930. For details and details of related services, see ISA 910, Financial Statement Review Engagement, ISA 920, Engagement to Perform Agreed-On Procedures Relating to Financial Information, and ISA 930, Compilation Engagement of Financial Information. Purpose of ISA 910 — setting standards and providing guidance on the auditor's professional responsibilities in performing an engagement, and on the form and content of the report that the auditor prepares in connection with such a review. Purpose of the review engagement - giving the auditor the opportunity to declare, based on the procedures performed by him, that they cannot provide him with all the necessary evidence. This evidence is necessary to express an opinion that the financial statements are not prepared, in all material respects, in accordance with these accounting and financial reporting principles. Thus, based on the review, the auditor may express a negative assurance. The auditor must comply with the Code of Ethics and plan and perform the review with a degree of professional skepticism, as circumstances may exist that lead to material misstatements of the financial statements. The scope of a review includes those review procedures deemed necessary to achieve the objective of the review. The review provides a medium degree of assurance that the information examined in the audit is free from material misstatement. The review review considers: 1) the terms of the engagement to be agreed upon in the engagement letter; 2) basic aspects of writing; 3) review planning aspects; 4) audit documentation; 5) basic procedures and evidence. In assessing materiality in a review, the auditor should adhere to the same criteria as when expressing an auditor's opinion in an audit of financial statements. The auditor here must also show an understanding of the client's business, conduct various comparisons, inquiries on various aspects of financial and non-financial information. In cases where it is possible to believe that the information may be grossly misrepresented, additional procedures should be performed that allow the expression of a negative assurance, or to confirm what is necessary from the audit results, issue a modified opinion (ISA 700). The report must contain clear guidance on what opinion to express: a) a negative assurance disclaimer; b) make a negative statement. 14. MCA 920. MCA 930 Target MCA 920 - setting standards and providing guidance on the auditor's professional responsibilities when the auditor is asked to perform agreed-upon procedures for financial information, and the form and content of the report. Purpose of the Agreed Procedures Task - performing audit procedures that have been agreed between the auditor, the responsible person and the user (or other third party), and providing a report. General principles of assignment on agreed procedures: observance of the Code of Ethics; compliance with the basic principles of ISA. Usually, the nature of the engagement, its scope, timing, the financial information to be audited, and the form of the report should be agreed upon. The task is completed with the help of a letter of assignment. In the process of completing a task, first of all, it is planned, documented, as well as all the necessary procedures and evidence in the form of requests, analysis, recalculations and comparisons, observations, inspections. The engagement report on agreed procedures should contain or reflect: 1) general information; 2) references to ISA; 3) declaration of lack of independence; 4) an indication of the purpose of the procedures carried out during the assignment; 5) list of procedures performed; 6) description of the noted facts; 7) a statement that this is not an audit or review and therefore assurance cannot be expressed; 8) a statement that additional procedures or a review could have identified other problems; 9) a statement that the report does not cover all of the entity's financial statements. Purpose of ISA 930 — setting standards and providing guidance on the professional responsibilities of an accountant in performing financial compilation assignments, and on the form and content of a report. The purpose of a compilation engagement is for the accountant to use expert accounting engagements rather than auditing engagements to collect, classify and summarize information. Typically, compilation engagements involve the preparation of financial statements and other financial information. The general principles for performing a compilation assignment include the need to comply with the Code of Ethics. In addition, in cases where the accountant's name is associated with the compilation of compiled financial statements, he must provide an appropriately formatted report. The report must contain the following information: general information; references to ISA; a reference to the lack of independence in relation to the subject; a statement that the information for the engagement was provided by the entity's management and management's responsibility for that information; a statement that because neither a review nor an audit has been performed, no assurance can be expressed as to the accuracy of the financial information; an indication of significant deviations from the basic principles. 15. PURPOSE AND GENERAL PRINCIPLES GOVERNING THE AUDIT OF FINANCIAL STATEMENTS Dedicated to these issues MCA200. Because this Standard deals with general principles governing an audit of financial statements, it should be read in conjunction with ISA 120. Purpose of ISA 200 - setting standards in relation to the purpose and general principles governing the audit of financial statements. The objective of an audit is for the auditor to express an opinion on the extent to which the financial statements, in all material respects, comply with the financial reporting principles. General audit principles include: - compliance with the Code of Ethics for Professional Accountants; - conducting and performing the audit with professional skepticism (i.e. taking into account possible misstatements); - compliance with the scope of the audit, i.e. those procedures that are necessary to achieve the objectives of the audit; - provision of reasonable assurance, i.e. assurance that the reporting in question does not contain material misstatements. Reasonable Confidence is formed by the auditor in the process of accumulating audit evidence necessary to formulate conclusions confirming the absence of material misstatements in the financial statements. Accompanying the audit limitations that are both subjective and objective. These limitations, which affect the ability to detect material misstatements in the financial statements, may be related to the following: - use of testing; - limitations inherent in accounting and internal control system (ICS); — the persuasive nature of the audit evidence; - subjectivity of judgments of the auditor. Corresponding Russian standard PSAD "Goals and basic principles related to the audit of financial statements" considers ethical principles to the basic principles of audit. This Russian standard discusses in detail the basic ethical principles that are separated in the ISA into a separate independent document "Code of Ethics for a Professional Accountant". 16. INITIAL AUDIT STAGE AND TERMS OF AUDIT ENGAGEMENT The work of the auditor begins before the audit begins and the auditor comes to the client. At the initial stage, the terms of audit engagements should be agreed upon, the main aspects of which are discussed in ISA 210, Terms of Audit Engagements. Purpose of ISA 210 - setting standards and providing guidance on negotiating the terms of the engagement with the client and drafting a response to the client's request to change the terms of the engagement. The agreement between the auditor and the client is based on the terms of the engagement. Even if there is a law on audit activity (as in Russia), a letter of engagement can be useful to a client. This usefulness is due to the fact that the auditor can in this document familiarize the management of the audit subject with the necessary and unknown information. It is desirable that the letter be sent to the client before the start of the audit. It should contain the information necessary to start the test. The letter should contain the following main elements: - the purpose of the audit; - management's responsibility for the financial statements; — the scope of the audit (including references to legislation); - determination of the form of reports in which the results of the assignment are reported; - mention of the possibility of a risk of non-detection; - requirement of free access to all accounting records and documents of the client; - the main stages of audit planning; - a statement about the need to obtain written confirmation from the management of the auditor's requests; - a request for confirmation by the client of the terms of the assignment; - the basis for determining the fee. Component audit. In the event that the audit is also carried out in a subsidiary (component), the question of sending a letter to the component is related to the following points: a) who appoints the component auditor; b) the need for a separate report; at) legal requirements; d) the scope of work of other auditors; d) share of the parent company; f) the degree of independence of the management of the component. Recurring audits. In these cases, a decision must be made to maintain the terms of the assignment or to revise them. Accepting a change to a job. If the client asks the auditor, before the audit is completed, to change the terms of the engagement to one that would allow for a lower level of assurance, then this should be carefully considered. In the event of a change in the original conditions, new conditions must be agreed upon. If the auditor cannot agree to a change in the engagement and cannot continue to work on the original engagement, then he needs to abandon the engagement and give a reasoned explanation for the refusal. 17. MAIN ASPECTS OF AUDITOR QUALITY CONTROL The most important part of the auditor's work are the observance and provision of all procedures that guarantee the high quality of the work of the auditor and audit firms. The ISA has developed a special standard for this purpose. ISA 220 Audit Quality Control. Goal ISA 220 - Setting Standards and Providing Guidance for Audit Quality Control with regard to: a) policies and procedures of the audit firm in relation to the audit work as a whole; b) procedures relating to the work received by the auditor's assistant. This standard is addressed directly to the auditors themselves, to the organization of activities within the audit firm. The standard describes the following requirements for the formulation and organization of work within an audit firm: 1. Quality control policies and procedures should be implemented at the firm level and at the level of individual auditors. 2. The firm shall implement quality control policies and procedures to ensure that all audits are conducted in accordance with ISAs and/or national standards and/or established practices. Control objectives are determined on the basis of: - professional requirements that are imposed on all auditors by the Code of Ethics for Professional Accountants; - orders to conduct inspections to employees with appropriate professional and technical training; - the need to delegate authority to control the execution of tasks; - conducting consultations that improve the quality of work; - monitoring - continuous monitoring of the effectiveness of existing quality control procedures. 3. General policies and procedures for quality control should be communicated to employees. 4. The application of the general policy and quality control procedures to the implementation of the audit in practice should be carried out for each specific audit. 5. The auditor is obliged to direct the work of assistants and supervise them in order to identify professional suitability, adherence to the audit plan and program, and identify all aspects of the audit. During the audit, in order to control the quality of the auditor's work, the following are subject to timely verification: - general plan and audit program; — assessment of inherent risk and risk of controls, taking into account the results of tests of controls; - documenting audit evidence; - financial statements, audit certificates and audit report. 18. AUDIT DOCUMENTATION Documenting is one of the most important aspects in the work of the auditor. The quality and results of the audit largely depend on the thoroughness, timeliness and systematic records. The ISA deals with documentation issues in ISA 230 "Documentation". Purpose of ISA 230 — setting standards and providing guidance on record keeping during the audit process. All aspects of the audit must be documented without fail. Documentation and documentation refers to the working documents that are created and executed during the audit. The standard makes the following requirements for working documents: 1) documents should be detailed and complete enough for a general understanding of the audit; 2) the documents should contain information about the planning, nature, timing and scope of audit procedures, their results, conclusions based on evidence. Basis for determining the scope of documentation is the professional judgment of the auditor. It must be emphasized that the exercise of professional judgment is one of the most important requirements of the ISA in relation to the auditor and his professional prerogative. This aspect attracts special attention, since at present the concept of professional judgment is virtually absent in the Russian accounting and auditing legislation and is replaced by the specific requirements of a particular regulatory document. Form and content of documents may depend on a variety of factors, which include: the nature of the audit engagement; the form of the audit report; the nature of the client's business; ICS of the client and organization of his accounting; methods and techniques of verification, etc. In the case of repetitive checks, part of the working documents may be entered into permanent working files. One of the most important requirements to the audit documentation - ensuring confidentiality in order to respect the interests of the client. Russian standard - analogue of MCA 230 - includes all the information contained in the ISA, but it is set out in more detail, taking into account the Russian documentation practice. So, in the Russian PSAD, details are presented in detail, which should contain documents. The order of storage of documents is described in detail, a list of standard working documents is contained. 19. IDENTIFICATION OF MISTORTIONS IN THE FINANCIAL STATEMENTS The most important task of the auditor during the audit - detection of various kinds of misstatements in financial statements, as well as an adequate assessment of the audit risks associated with this, and taking the necessary measures to prevent violations and improve the reliability of financial statements. The ISA addresses these issues in ISA 240, The Auditor's Responsibilities for Dealing with Fraud and Error in an Audit of Financial Statements. Purpose of ISA 240 — setting standards and providing guidance on the auditor's responsibility to deal with fraud and error in an audit. The risk of material misstatement of the financial statements must be considered in the process of planning and conducting an audit, in the course of evaluating the results of audit procedures and preparing reports. The standard defines and characterizes the categories of fraud and error. Errors - This is an unintentional misrepresentation of reporting. Fraud is an intentional act done for the purpose of obtaining an illegal benefit. К main types of fraud include misstatements in reporting and misstatements arising from misappropriation of assets. To detect fraud and errors the auditor can send to the management of the client requests about: a) management's assessment of the risk of material misstatement due to fraud and error; b) accounting systems and ICS; c) identify management's awareness of fraud and error. Carrying out such work is necessary to reduce the audit risk, which is devoted to ISA 400 "Risk Assessment and Internal Control". Audit risk means that the auditor may express an inappropriate opinion when the financial statements contain financial misstatements. Audit risk includes inherent risk, control risk, and detection risk. In assessing inherent and control risk, the auditor should consider the extent to which the reporting could be materially misstated due to fraud and error. When testing detection risk based on inherent risk and control risk, the auditor should design appropriate substantive procedures. In the course of these works, the nature, time risks and scope of verification procedures should be determined. The auditor should perform audit procedures that indicate possible misstatements. During the audit, the auditor should determine whether the misstatement identified by him is fraudulent. 20. EVALUATION OF MISTORTIONS IN REPORTING The assessment and characteristics of misstatements and their impact on the audit report are determined by the auditor based on paragraph 12-16 of ISA 320 "Audit Materiality" and paragraph 36-46 of ISA 700 "The Auditor's Report on Financial Statements", which show how the assessment should be made and reflect the nature of the misstatements and their effect on the auditor's report. The auditor should document fraud risk factors. The auditor must be presented management statements, where should be confirmed: his responsibilities for the creation of the ICS system; insignificance of errors that do not distort the essence of reporting; all facts that may relate to fraud. ISA 580 Management Statements contains relevant information. The auditor is obliged in case of detection of misstatements and fraud communicate this information to the client's management (ISA 260 Communication of Aspects of the Audit to Those With Governance). This message should contain information about significant deficiencies in internal controls. In cases where the violations are of a serious nature and are intentional fraud, the auditor is obliged to report all the facts he discovers to law enforcement agencies. The auditor may refuse to perform the assignment if there are serious misstatements and disagreements with the management of the client. At the same time, he is obliged to apply to the management of the client with a reasoned statement. Separately, in the annexes to the standard, various examples are given that characterize the facts of risk associated with the distortion of financial statements as a result of fraud. In particular, to circumstances that indicate the possibility of deliberate misrepresentation of financial statements, may include: - setting unrealistic timeframes for audits; - unwillingness of the entity's management to cooperate with auditors and exchange information, which may lead to a limitation in the scope of the audit; - untimely submission of information; - the presence of unusual transactions, especially at the end of the reporting period; - significant discrepancies between the data of synthetic, analytical accounting and auxiliary accounts; - lack of adequate controls, etc. The Russian PSAD, which largely coincides with its international counterpart, differs from it, primarily in the absence of the terms "mistake" and "fraud". 21. THE NEED TO CONSIDER THE LEGISLATION IN THE AUDIT The audit of financial statements and their audit is not possible without a good knowledge of the auditor of laws and regulations on the basis of which accounting should be carried out and financial statements should be prepared. To do this, the ISA provides a standard ISA 250 Accounting for Laws and Regulations in an Audit of Financial Statements. Purpose of ISA 250 - setting standards and providing guidance on how to take into account laws and regulations in the audit. In the course of the audit, the requirement that the subject of the audit must comply with the laws and regulations on the basis of which the financial statements are prepared. The management of the subject is responsible for compliance with the laws. In this work, one can use various policies and procedures, which help the management of the enterprise in: a) monitoring changes in legal requirements; b) development of an appropriate ICS; at) development, publication and observance of internal regulations, etc. SVK is a system of internal control that includes all policies and procedures adopted by the management of the auditee to help achieve management objectives for the orderly and efficient conduct of business. The ICS includes the control environment and control procedures. The control environment is formed the following main aspects or factors: functions of the board of directors; leadership style; the organizational structure of the subject of verification and the scheme of its management; methods of empowerment and responsibility; management control system. The control environment affects the effectiveness of specific control procedures. Control procedures (PC) include policies and procedures established by management in addition to the control environment. PCs include: 1) accountability, reviews; 2) verification of arithmetic entries; 3) exercising control over application programs, computer and information environment and changing computer programs; 4) maintenance of analytical accounts and statements (accounting registers); 5) development of a document management system, etc. In accordance with ISA 250, the auditor should plan the audit with professional skepticism in mind, recognizing that the audit may identify conditions or events that cast doubt on compliance with the law. The auditor must understand the law. To do this, he must obtain information about the industry specifics of the business. The auditor must obtain a written statement from management that all information about the facts of existing violations has been communicated to him. In case of non-compliance with the law, the auditor is obliged to document the discovered facts. Upon detection of facts of non-compliance with the law, the auditor is obliged to report them to the management of the audit subject. If the breach resulted in a serious misstatement of the accounts, the auditor is required to express in the report modified opinion - a qualified or negative opinion (ISA 700). 22. FAMILIARIZE THE AUDITOR'S MANAGEMENT WITH THE MOST IMPORTANT AUDIT ASPECTS ISA 260 Communication of Aspects of the Audit to Those Equipped with Governance establishes the ground rules for providing management with information about the main aspects of the audit that arise during the audit of financial statements. This standard identifies concepts such as governance and audit matters that are relevant to management. Under governing powers ISA 260 understands persons who perform the functions of organizing the activities of an enterprise, supervision and control. Under audit matters relevant to management, ISA 260 understands the issues that arise during an audit. Such information is at the same time important both for establishing criteria for the reliability and accuracy of financial statements, and for managing the enterprise and exercising control and oversight functions, which are the prerogative of management. Since different countries have different laws and different criteria governing organization and management, the auditor should use his professional judgment in determining the circle of persons to whom he should communicate information about critical aspects of the audit. Important and interesting aspects of an audit include: - the general approach, any restrictions and any additional requirements; - selection or change of significant principles and methods of accounting policies that may have a significant impact on the results of the financial statements; - audit adjustments; - impact (possible) of any risks on the results of reporting; - Disagreements with management. The auditor should communicate information to management in a timely manner. If it is necessary to make a modified opinion, its execution should be carried out on the basis of ISA 700 "Auditor's report". 23. GENERAL AUDIT PLANNING ISSUES Audit planning is the process of developing the overall strategy and details of the audit. The main objective of the audit planning procedure is to conduct it most effectively. Efficiency here refers to the establishment of the scope, directions, timing and cost of verification. To this end, the ISA has developed the M300 "Planning" standard. Purpose of ISA 300 - setting standards and providing guidance for planning an audit of financial statements. Audit planning should be efficient and conducive to the best possible performance of the audit. The audit plan should cover the entire audit, at its full scale. When developing an overall audit plan, the following aspects should be considered: 1) knowledge of the client's business (industry specifics; features of the subject; level of competence of the subject's management); 2) understanding of the accounting system and ICS (assessment and analysis of all elements of the accounting policy; the auditor's knowledge of the features of the client's business and similar businesses); 3) risks and materiality, which include: — expected estimates of inherent risk; - establishment of materiality levels; - identification of complex areas of accounting; 4) the nature, timing and scope of audit procedures (the distribution of audit procedures by audit areas; determining the impact on the audit results and the auditor's opinion; using the results of the work of internal auditors during the audit); 5) coordination, direction of work, supervision and review (involvement of various specialists). In the process of planning an audit, an audit program should be developed that determines the nature, timing and extent of the planned audit procedures, indicating the approximate timing of their implementation. During the audit, the plan and program may be reviewed with mandatory documentation of all changes. Unlike ISA 300, the domestic standard contains two appendices that contain an exemplary audit plan and an audit program designed to assist auditors in the development of such materials. 24. AUDITOR'S KNOWLEDGE OF THE CLIENT'S BUSINESS Business Knowledge - both the general level of qualification and competence of the auditor, and his knowledge of the client's business. This aspect is extremely important at the initial stage of the audit - at the planning stage, since it allows you to draw up an audit plan most accurately, taking into account the specifics of the audited enterprise. To this end, the ISA has developed the ISA Business Knowledge standard, which forms an idea of what is meant by business knowledge. The auditor should have sufficient knowledge of the client's business to make appropriate judgments and to express an appropriate opinion in the auditor's report. At the same time, it should be understood that the level of knowledge of the auditor about the business of the subject is lower than the level of knowledge of management about its business. At least two consequences follow from this. First, the auditor may not have all the necessary information. Secondly, the limitation of information means that there is a risk of expressing an erroneous or insufficiently motivated opinion about the reporting of the subject. Knowledge of business aspects is necessary at all critical stages of the audit: — when evaluating inherent risk and risk of controls; - when considering commercial risks; - when developing an audit plan; - when determining the level of materiality; - Gathering audit evidence. In cases where the audit is not carried out by one auditor, but with the help of assistants, the auditor should be responsible for the training of assistants and supervise their activities. It is also the responsibility of the auditor to work with assistants to provide them with relevant materials that expand the assistants' knowledge of the business of the subject of the audit. In addition, the auditor is required to analyze and evaluate how the assistant's judgments about the client's business meet the necessary requirements. The annex to the standard deals with some aspects in the field of business knowledge, which are grouped into three sections: A. General economic factors: a) availability of financial resources; b) inflation rate; at) state policy in the field of economy and general development trends (recession or growth). B. Industry factors: a) market conditions; b) the presence of a seasonality factor; at) technology level; d) business phase - contraction or expansion; d) accounting problems; f) standards; g) specificity. C. Subject analysis: a) type of organizational management system, as well as the organizational structure of the subject; b) location of the entity, its subdivisions, branches or other subdivisions; at) the composition of the owners; d) capital structure; d) business goals; f) sources and methods of financing; g) composition of the company's management; with) specifics of activity; and) suppliers; to) structure of inventories (structure and features of assets) and its impact on the level of liquidity and solvency of the subject; l) structure of intangible assets; m) debt structure; n) basic coefficients; about) regulatory framework. 25. DETERMINATION OF MATERIALITY IN THE AUDIT Materiality is understood by the ISA to be such a property of information, in the presence of which an omission or misstatement may affect the decision taken by the user of financial statements. The concept of materiality is disclosed in ISA 320, Audit Materiality. Purpose of ISA 320 — setting standards and providing guidance on the concept of materiality and its relationship to audit risk. The assessment of materiality is the subject of the auditor's professional judgment. Acceptable level materiality is established during the audit in order to identify material misstatements in the financial statements. An example of a misstatement would be, for example, an insufficient description of an accounting policy. Under the accounting policy is understood the system of organization and maintenance of financial accounting at the enterprise - the subject of verification. IFRS deals with the formation of accounting policies in IFRS 01 "Presentation of Financial Statements". In the domestic accounting legislation - PBU 1 "Accounting policy". As a result of consideration and analysis of various aspects of financial statements, it is possible to obtain different levels of materiality for the financial statements as a whole and for individual account balances and classes of transactions. Materiality should be assessed in determining the direction, timing and scope of the audit and in evaluating the effects of misstatements in the financial statements. Determining the level of materiality at the audit planning stage allows the auditor to select and apply those audit procedures that will reduce audit risk to an acceptable level. Relationship between audit risk and materiality - the opposite, i.e. the higher the level of materiality, the lower the audit risk. This must be taken into account when determining the timing of the audit, the types and scope of audit procedures. The materiality level may be lowered during the audit. This can be compensated by additional testing, an increase in the period of verification, the volume of planned substantive procedures. The auditor should determine whether the set of uncorrectable misstatements identified during the audit is material. These uncorrectable distortions include: - uncorrected misstatements of past periods; - errors that cannot be precisely determined, but only predicted. If the auditor determines that misstatements may be material, the auditor should take steps to mitigate audit risk. This can be achieved, in particular, by expanding the scope of audit procedures or amending the financial statements. If the management of the client refuses to amend the financial statements, the auditor should issue a modified opinion, taking into account ISA 700. 26. AUDITOR RISK AND ITS COMPONENTS Audit risk is such an important and significant aspect of the audit that sections in various standards are devoted to this issue to one degree or another. ISA 400 "Risk assessment and internal control", ISA 401 "Audit in the environment of computer information systems" and ISA 402 "Accounting for the characteristics of entities using service organizations" are directly devoted to the problems of audit risk and its components. Purpose of ISA 400 - setting standards and providing guidance on the accounting and internal control system, as well as on audit risk (AR) and its components: inherent risk (HP), control risk (RFR) and detection risk (RN). The auditor should use his professional judgment to evaluate audit risk and develop procedures to reduce that risk to an acceptable level. Audit risk (AR) - The risk that the auditor may express an inappropriate opinion if there are material misstatements in the financial statements. It includes: 1. Inherent Risk (HP) - the susceptibility of account balances or classes of transactions to misstatements that could be material, individually or in the aggregate, in the absence of adequate internal controls. In the Russian standard (PSAD "Materiality and audit risk") this type of risk is called intraeconomic risk, since in its essence it is a risk inherent in the specifics of a particular type of activity or business. 2. Control Risk (RCR) is the risk that a misstatement that may be made in relation to account balances or classes of transactions cannot be corrected in a timely manner or detected and corrected by the enterprise's accounting and internal control system. 3. Risk of non-detection (RN) - the risk that audit procedures do not substantially detect misstatements in account balances or classes of transactions that could be material, individually and in the aggregate, regardless of the extent of the audit. 27. INTERNAL CONTROL SYSTEM Internal Control System (ICS) - includes the policies and procedures adopted by the auditee's management to help achieve management objectives for orderly and efficient business conduct: strict adherence to management policies, safeguarding of assets, prevention and detection of fraud and error, accuracy and completeness of accounting records, and timely preparation of reliable financial reporting. The internal control system consists of the control environment and control procedures. The control environment is shaped by the following main aspects or factors: - functions of the board of directors; - leadership style; - the organizational structure of the subject of verification and the scheme of its management; - methods of empowerment and responsibility; - management control system. The control environment affects the effectiveness of specific control procedures. A strong control environment with strong budgetary controls over funds and a strong internal audit unit can complement specific control procedures. Control procedures (PC) include policies and procedures established by management in addition to the control environment. PCs include: - accountability, review checks; - checking arithmetic records; - exercising control over application programs and the computer and information environment and changing computer programs; - maintenance of analytical accounts and statements (accounting registers); - development of a document management system, etc. In developing the audit plan, the auditor should evaluate the inherent risk at the level of financial statement positions and at the level of account balances and classes of transactions. The auditor should compare the HP level with existing account balances or classes of transactions and decide at the assertion level that the HP level is high. In doing so, the auditor should rely on his professional judgment. At the level of financial statements The auditor's judgment may be influenced by the following factors: 1) a description of the leadership in terms of its professional and moral qualities; 2) nature of business and capital structure; 3) the influence of external factors affecting the level of reporting distortion; 4) industry specifics. At the level of account balances and classes of transactions, factors such as: - the complexity of operations and the need to involve experts; - making unusual transactions at the end of the reporting period; - the presence of atypical operations that are not subject to normal processing processes. 28. INTERNAL CONTROL (ICS) AND ACCOUNTING SYSTEM AND ITS RELATION WITH AUDITOR RISK An adequate preliminary assessment is possible only taking into account knowledge of the entity's internal control and accounting system. The accounting and internal control system is designed to ensure timely recording of all transactions on the relevant accounts; ensuring access to assets only with the permission of management; comparison of existing assets with those accounted for. Natural, objectively existing limitations of the ICS: 1) the need to comply with the cost-effectiveness of ICS (unfortunately, this factor in practice leads to negative consequences, since many useful and even necessary control procedures may not be carried out due to the high cost); 2) orientation of the ICS to ordinary rather than rare operations; 3) the presence of the human factor; 4) abuse of power; 5) change in the environment and the inadequacy of the ICS in it. The accounting system and its understanding include the main classes of transactions and the way they are initiated; the significance of accounting records and primary documents and accounts; accounting and financial reporting process. To understand and evaluate the accounting system and internal control systems, the auditor should use the following procedures: a) interviewing employees and studying their job descriptions; b) verification of accounting documents and registers and internal control documentation; c) to monitor the operations of the client, etc. How important the above aspects are for understanding the entity's accounting system can be judged by next example. In Russia there is a unified chart of accounts for accounting, which is mandatory for use by all enterprises and organizations operating in Russia. At the same time, when classifying accounts and assigning business transactions to a particular class, the actions of accountants and managers should be the same, regardless of the size and specifics of the enterprise. In other words, in accordance with the Russian chart of accounts, for example, when buying a computer, any Russian enterprise must classify it as a fixed asset and attribute it to the group of non-current assets. If we consider the same case on the example of GAAP, we will see a different picture. In the United States, there is no national chart of accounts on the basis of which all assets and liabilities of enterprises and organizations should be classified. However, there are general rules that allow any enterprise to build its working chart of accounts and further compare and identify the charts of accounts of various enterprises. At the same time, depending on the ratio of the size of the acquired asset to the size of the assets of the enterprise, it, based on the subjective assessment of managers, can be attributed either to fixed assets (in a small enterprise) or to working capital (in a large enterprise). 29. SYSTEM AND CONTROLS When planning an audit, the auditor should have an understanding of the system and controls. In a preliminary assessment of the risk of controls, it is necessary analysis of ICS efficiency. This work is a process of determining the effectiveness of the ICS in terms of the possibility of preventing and correcting misstatements in reporting. The auditor must risk assessment of controls at the level of each significant balance or class of transactions. The auditor may assess the risk of controls as high, for example, if the internal control and accounting systems are not effective; assessing the effectiveness of the accounting system and the internal control system in a high-risk environment is not appropriate. An exception to this may be, for example, the presence of a ICS capable of preventing, detecting and correcting distortions. For this, it is useful to use various tests. The risk of controls should be appropriately documented. The documentation should reflect an understanding of the accounting system and ICS, as well as an assessment of the risk of controls. The auditor chooses the methods of documentation at his own discretion. These can be: a description, various questionnaires, diagrams, etc. Tests of controls should be designed to determine the effectiveness of the ICS in the accounting system. Tests can include various queries and observations. The lower the risk assessment of controls, the more evidence needs to be obtained on the design of the control system and the accounting system. The final risk assessment of controls should be supported by substantive procedures and other evidence. There is a close relationship between inherent risk and control risk. Typically, this is because management's actions to reduce inherent risk result in a stronger control environment and reduce the risk of controls. In these cases, the assessment of audit risk, as a rule, is carried out in combination. Unlike the first two types of audit risk, detection risk is directly related to substantive audit procedures. A feature of detection risk is that it can persist even if all 100% of account balances are checked. The relationship between the risk of non-detection and the first two types of risks is inverse. If inherent risk and control risk are high, the risk of non-detection should be low. This allows you to reduce the AR to a low level. If inherent and control risks are low, the auditor may increase detection risk, which may also lead to a reduction in audit risk. Assessment of audit risk components may change during testing. At the same time, it is necessary to make appropriate adjustments to the audit program in terms of the composition of audit procedures. When assessing audit risk should be guided by ISA 400 "Risk Assessment and Internal Control" and, based on the existing limitations on the reliability of the ICS and accounting, rely not on the internal control system, but on substantive audit procedures. 30. FEATURES OF THE ASSESSMENT OF AUDITOR RISK IN THE ENVIRONMENT OF COMPUTER INFORMATION SYSTEMS When conducting an audit in a computer environment, the assessment of audit risk becomes more complicated. To establish standards and provide guidance on the procedures to be followed when auditing in a computer information system (CIS) environment, the auditor should apply the guidelines ISA 401, Auditing in a Computer Information Systems Environment. During the course of the audit, the auditor should determine whether how CIS affects the audit. This impact may affect: audit procedures and the auditor's understanding of the accounting system and ICS; reviewing and evaluating inherent and control risks; on the development and implementation of tests of controls and substantive procedures. In the course of the audit, the auditor does not necessarily need to have the appropriate qualifications and skills in the field of computer technology. For this, employees of an audit firm or outside professionals can be involved. In this case, the work of such a specialist should be assessed as the work of an expert, which should be governed by ISA 620, Use of the work of an expert. When planning those stages of the audit that may be affected by the CIS environment, the auditor should be aware of the significance and complexity of the CIS operation. The terms significance and complexity are related to the materiality of the prerequisites for the preparation of financial statements, the volume of transactions performed, etc. Where CIS plays a significant role in the course of the audit, the auditor should obtain an understanding of the CIS environment and how it may affect the performance of internal controls in the CIS environment. In this regard, it is necessary to pay attention to the specifics of the formation of applied computer programs and systems; for programming errors; on the lack of separation of control functions in the CIS environment; for the presence of possible errors during the maintenance and operation of the CIS. When assessing risk, which may be associated with the use of CIS, the auditor should be guided by the main aspects and approaches of ISA 400 "Risk Assessment and Internal Control" regarding the assessment of inherent risk and risk of controls. This may be because the inherent and control risk in the CIS environment can have a general and account-specific impact on the likelihood of material misstatement of the information contained in the financial statements. Working in a CIS environment can influence how audit procedures are applied. The audit may reveal some difference between manual and automated collection and processing of information. 31. ASSESSMENT OF AUDITOR RISK AND INTERNAL CONTROL SYSTEMS OF ENTITIES USING SERVICE ORGANIZATIONS Service organization is a company that provides various accounting and financial reporting services. In these cases, ISA proposes to use the recommendations of ISA 402 Consideration of the characteristics of entities using service organizations. Purpose of ISA 402 - setting standards and providing guidance to the auditor whose client uses the services of a service organization. If a client uses a service organization, all of the basic service organization accounting practices may be relevant to the audit of its financial statements. The client can either organize his own accounting policy and accountability, or the client can transfer to the service organization all the functions of setting up and maintaining accounting records. The auditor should determine the significance of the activities of the service organization to the client and its audit. For this, the following questions are considered: - the nature of the services provided; - conditions of a contract; - significant prerequisites for the preparation of financial statements; - inherent risk; - the degree of connection of the client system with the system of the service organization; - information about the service organization; - details of general controls. If a close relationship with customers is found during the audit, the auditor should evaluate the risk of the control system either at the maximum level, or subject to tests of QC at a lower level. The standard describes the main requirements for the conclusion of the auditor of the service organization. Usually, The service auditor's report is of two types: 1) conclusion on the suitability of the structure, which includes: - description of the accounting system and ICS of the service organization; - the opinion of the auditor of the service organization; 2) conclusion on the suitability of the structure and the effectiveness of its functioning. In addition, when drawing up a conclusion of the first type, it should contain a description of the effectiveness of the functioning of accounting systems and ICS. The auditor should pay special attention to the scope, timing and nature of the audit procedures performed. 32. CONCEPT AND TYPES OF AUDITOR EVIDENCE Audit Evidence is the information obtained in formulating the conclusions on which the auditor's opinion is based. These include primary documents, accounting records, other supporting information. The ISAs deal with the main aspects of audit evidence in ISA 500, Audit Evidence. Purpose of ISA 500 — setting standards and providing guidance on the quantity and quality of audit evidence required in an audit of financial statements. Audit evidence should be sufficient to draw reasonable conclusions on which the auditor's opinion is based. In the course of obtaining audit evidence, tests of controls may be used, as well as substantive audits. Control Tests - tests conducted in order to obtain audit evidence that characterizes the effectiveness of the functioning of accounting systems and internal control systems. Substantive Procedures are procedures that are performed to obtain sufficient audit evidence to detect material misstatement in the financial statements. These procedures may take the form of: - detailed tests of business transactions; - analytical procedures (ISA 520). Tests of controls are performed to confirm the risk assessment of the internal control system, and substantive procedures are performed to test the assertions on which the financial statements are based. Adequacy appropriate audit evidence is a quantitative measure of the evidence gathered during an audit. Typically, the auditor relies on evidence that is persuasive but not exhaustive in nature. Relevance is a qualitative property of audit evidence that is used during the audit. The auditor's opinion is influenced by: - audit evaluation of the nature and magnitude of inherent risk at the level of financial statements and at the level of account balances; - the nature of accounting systems, internal control systems and risk assessment of controls; - the materiality of the article or articles being checked; - previous experience; - the results of audit procedures, including fraud detection; - sources and sufficiency of available information. 33. BACKGROUND TO THE PREPARATION OF THE FINANCIAL STATEMENTS When obtaining audit evidence through substantive procedures, the auditor should consider whether it is sufficient to support the financial statement assertions. Prerequisites for the preparation of financial statements - this is, in essence, the opinion of the management of the audited enterprise, which is explicitly and implicitly expressed in the financial statements. The financial statement assertions can be broken down into the following categories: - existence - evidence of the existence of an asset or liability on a specific date; - rights and obligations - confirmation of ownership of assets and liabilities to the subject on a certain date; - occurrence - confirmation that the operations of the reporting period relate to the subject; - completeness - confirmation of the completeness of the information reflected in the financial statements; - valuation - confirmation of the proper valuation of the elements of financial statements; - accurate measurement - confirmation of the correct number of transactions and the assignment of income and expenses to the desired period; - presentation and disclosure - disclosure and classification of items in accordance with the basic principles of financial reporting. Audit evidence is collected for each separate category of assertions, and the presence of one cannot compensate for the absence of the other. Exist general rules for assessing the reliability of audit evidence during the audit. Among them are the following: — audit evidence obtained from external sources is more reliable than that obtained from internal sources; - audit evidence is more reliable if the accounting system and ICS are effective; - audit evidence collected directly by the auditor is more reliable than that obtained through third parties; Written audit evidence is more reliable than oral audit evidence. К procedures for obtaining audit evidence relate: - inspection - during the inspection, evidence is documented, which are characterized by various degrees of reliability; Observation - looking at a process or procedure being performed by others. This is necessary in cases where there is no documentary evidence and it is impossible to recalculate; - request and confirmation - search for information from knowledgeable persons; - calculation - checking the accuracy of calculations; - analytical procedures - analysis of important coefficients and trends (ISA 520). 34. OBTAINING AUDITOR EVIDENCE WHEN REVIEWING INDIVIDUAL REPORTING LINES In ISAs, the process of obtaining audit evidence is divided into two parts - obtaining general evidence and all audit problems related to this are discussed in ISA 500. And in ISA 501 "Audit Evidence - Additional Consideration of Special Items" deals specifically with additional items that are of particular importance in an audit of financial statements. The Russian PSAD "Audit Evidence" considers in one document all the main issues that are considered by ISA 500 and ISA 501, taking into account all the differences and features. Purpose of ISA 501 - setting standards and providing guidance in addition to ISA 500. Part A refers to the presence of the auditor during the inventory of inventory items. In doing so, the auditor determines: - features of accounting systems and ICS used in relation to inventory items; - the level of inherent risk, the risk of controls and the risk of non-detection and the level of materiality; - the adequacy of inventory procedures; - timing of the inventory; - determination of places of storage of inventory items; - the need to use experts. Part B - included in ISA 505. Part C - contains an inquiry about court cases and claims. The auditor is obliged to collect all necessary evidence about the client's court cases and litigations (direction of inquiries, review of protocols and correspondence with the subject's lawyers, verification of invoices for the costs of legal services). Contact with the lawyers of the entity is carried out by sending a written request to its management. Management's refusal to provide legal information and legal contracts may result in a qualified opinion or dissenting opinion. Part D - includes valuation and disclosure of information on long-term investments. This part reflects information on the value of investments and on their classification as long-term investments, on quotations, discounts on securities, etc. Part E - contains information on segments. Such information should be disclosed if it is material. 35. COLLECTING EVIDENCE WHEN INVENTORY The collection of evidence depends on the type of inventory. ISA considers two types of inventory: continuous, current and periodic. Continuous and Periodic Inventory - these are the concepts that are inherent in IFRS, or, for example, GAAP. In Russian accounting, these concepts are not yet available, since Russian accounting operates with the concept of "inventory" without division into types. The division of inventory into types is associated with different ways of accounting for inventories at different enterprises. Periodic inventory method and Perpetual inventory method are carried out at enterprises depending on the method of inventory accounting existing on them. On periodic inventory method The cost of goods sold is determined by the actual expense (receipt - balance). At the same time, the enterprise does not keep a natural-value accounting of the movement of goods. During periodic inventory loss of goods (inventory loss) are included in the cost of goods sold (loss, theft, damage), since they are not actually available at the time of the inventory. Thus, we can say that this method is not very accurate and, which is important for determining the cost of goods sold, this method of accounting for inventories requires an inventory every time when determining financial results, that is, in each reporting period. The periodic inventory method is typical for firms that have a large range of goods and materials and therefore do not have the ability to keep operational records for each item. According to the method of current (or continuous) inventory the cost of sales can be identified for each item of goods and on the general account "Goods". The balance of inventory accounts shows the value of the balance for each type of goods (or other stocks) and in general for the enterprise. The current inventory method can be used in firms with a small range of goods or in firms trading in expensive commodity items. 36. USE OF EXTERNAL CONFIRMATIONS TO INCREASE THE RELIABILITY OF AUDITOR EVIDENCE If the auditor decides to use external confirmations in the audit, the auditor should consider materiality, the level of inherent risk, control risk, and how other planned procedures can reduce audit risk to an acceptably low level for the applicable financial reporting assertions. . For this purpose, the ISA has developed ISA 505, External Confirmations. Purpose of ISA 505 — setting standards and providing guidance on the use of external confirmations that are used by the auditor as external confirmations. External confirmations is the process of obtaining and analyzing audit evidence through direct communication with third parties. In this case, it is necessary to take into account the environment of the subject's action and existing practice. The reliability of the information obtained depends on the procedures used during the audit when drawing up a request for confirmation of the implementation of these procedures and evaluating their results. Factors affecting the reliability of the evidence obtained include controls. There is a link between external confirmation procedures and the assessment of inherent and control risks. ISA 400 describes procedures where external confirmations can be used to mitigate inherent and control risk. The higher the assessment of inherent and control risk, the more audit evidence is required during the audit. The lower the level of inherent and control risk, the less evidence the auditor needs to obtain. (For example, if you already have information about the terms of the loan, then you can limit yourself to testing the balance on the current movement.) External assurances include all the categories of assertions that are addressed in ISA 500. The nature of external assurances may vary for different assertion categories. The request for external confirmation should be consistent with the specific audit objective. Both positive and negative confirmations can be used during the audit. Generally, a response to a request for positive confirmation is reliable evidence. Request for grant negative confirmation, usually used to reduce audit risk to an acceptably low level where when: 1) the level of inherent risk and risk of controls is assessed as low and there are a large number of small balances; 2) a large number of errors are not expected; 3) the auditor is confident that his request will be granted. When making inquiries, the auditor should pay attention to: 1) features of those responding to requests (position, qualifications, etc.); 2) external validation process; 3) the presence or absence of responses; 4) the reliability of the responses received. 37. THE SIGNIFICANCE OF INFORMATION IN AUDIT AND FINANCIAL REPORTING ISA 510 Primary Assignments - opening balances" sets standards for the consideration of opening balances when an audit of financial statements is conducted for the first time or when a previous audit was performed by another auditor, as well as when contingent facts or obligations are identified at the beginning of the period. For this, ISA 710 Comparable Values. For an initial audit engagement The auditor should obtain appropriate evidence that: - the opening balance (SN) does not contain distortions that may affect the financial statements; - closing balances (SC) of the previous period were correctly transferred to the beginning of the current period or appropriate changes were made to them; - Accounting policy is consistent from period to period. If it has changed, then these changes are reflected or disclosed in the financial statements properly. Opening balances - reflect the results of previous periods and the accounting policy of the previous period. Obtaining proper evidence of opening balances depends on: - accounting policy of the subject; - the presence of an audit for the previous period and the presence of a modification of the audit report; - the nature of the accounts and the risk of misstatement of the financial statements; - materiality of ST for the financial statements of the current period. When reviewing another auditor's prior report, the Code of Ethics for a Professional Accountant should be invoked. If the auditor has not obtained sufficient evidence on the SN, then the report should include a qualified opinion or should contain a disclaimer of opinion. The need to pay attention to the distortion of CH. If the results of a CH misstatement are not properly reported in the financial statements, the auditor is required to express a qualified opinion or an adverse opinion. The same applies to changes in accounting policies. 38. OBTAINING AUDITOR EVIDENCE USING ANALYTICAL PROCEDURES Analytical procedures - this is an analysis of ratios and trends that are important in assessing the financial condition of an entity, including the subsequent study of their fluctuations and relationships if they are not consistent with other relevant information or deviate from the values provided. Aspects of auditing related to analytical procedures are dealt with in ISA 520 Analytical Procedures. Purpose of ISA 520 — setting standards and providing guidance on analytical procedures to be carried out during an audit. Analytical procedures should be applied primarily at the planning stage and the review stage of verification. Carrying out such procedures helps in summarizing and evaluating financial information at the initial and final stages of the audit. Analytical procedures include consideration of the entity's financial information in comparison to: 1) comparable information for the previous period; 2) expected performance results; 3) similar industry information. Analytical procedures consider the relationships between elements of financial information that should be consistent with forward-looking values, between financial and non-financial information. Analytical procedures can be carried out by all methods that are inherent in economic analysis. Analytical procedures can be applied: 1) when planning an audit, determining its specifics, timing and determining the scope of audit procedures; 2) when conducting substantive procedures (instead of tests); 3) as a final review check at the final stage of the audit. When the auditor performs substantive procedures, the following factors should be considered: 1) the purposes of analytical procedures and the degree of their reliability; 2) the nature of the subject; 3) availability of financial and non-financial information; 4) the reliability of the information available; 5) the relevance of the information available; 6) the source of the available information; 7) comparability of information. The degree of reliability of analytical procedures depends on the auditor's assessment of the risk that analytical procedures may reveal relationships based on expected data. The degree of confidence of auditors depends on: 1) the materiality of the articles under consideration; 2) the accuracy with which analytical procedures are carried out; 3) evaluation of inherent risk and risk of controls. The auditor, if necessary, should examine unusual articles. Comparing ISA 520 and PSAD "Analytical Procedures", it should be noted that despite the similarity of these standards, the Russian standard has one significant difference from ISA. In this section of the Russian standard, it is written that during the audit it is possible to carry out "comparison of financial statements and related relative ratios of the reporting period with the normative values established by the current legislation ...". 39. OBTAINING AUDITOR EVIDENCE THROUGH SPOTLIGHT CHECK When sampling procedures are used during the audit, the auditor should obtain audit evidence by sampling. Audit sampling means applying audit procedures to less than 100% of items within an account balance or class of transactions so that all sampling items can be selected. The auditor should determine the appropriate methods for selecting items for testing when developing audit procedures using ISA 530, Audit Sampling and Other Sampling Procedures. Purpose of ISA 530 — setting standards and providing guidance on the use of audit sampling procedures and other means of selecting items to be tested in order to gather audit evidence. When sampling, errors may occur, which are a consequence of the sampling. In ISA 530, an error means either a deviation from normal operation of a control when performing tests of controls, or a misstatement when performing a substantive test. Exist concepts of complete error, which means either the degree of deviation, or the total deviation of the anomalous error - an error due to a single case that does not repeat and cannot be representative; allowable error - the maximum size of the population error. Population is the complete set of data from which the auditor selects a selected population. The population is divided into strata, each of which is tested separately. Stratification - this is the process of dividing the general population into strata (sample elements with similar characteristics). The risk associated with the use of sampling means that conclusions drawn from the selected population may differ from those drawn from the general population. Two types of risk: 1) the risk that the auditor, when testing controls, will conclude that the risk of controls is lower than the real one; When performing audit procedures on the merits, if there is a real error, it may not be detected. This type of risk can cause the auditor to draw inappropriate conclusions by understating the risk; 2) the risk that, in the case of using a sampling method, the auditor will come to the conclusion that the risk of controls is higher than actually she is not. Selection element - individual accounting items that make up the general population. Statistical sampling - any sample based on the following approaches: a) a random set of the selected population; b) application of the theory of probability to assess the results of the sample, including the assessment of the risk associated with the use of the sampling method. 40. SIZE OF THE DISPLAYED POPULATION FOR CONTROL TESTS Factors affecting the size of the displayed population: 1. The higher the inherent risk score, the larger the population size should be. 2. The higher the risk assessment of controls, the larger the sample size should be. 3. The more the auditor relies on other substantive procedures to reduce detection risk, the smaller the sample size may be. 4. The more the auditor must be confident in the exponentiality of the selected population, the larger the sample size. 5. The higher the cumulative error, the lower the sample size (and vice versa). 6. The larger the error that the auditor expects to detect, the larger the sample size should be. 7. With stratification, the total size of the populations selected is usually smaller than in the case of an unstratified population. 8. In the case of a large general population, its actual size has little effect on the sample size. When organizing the selected population, the auditor should analyze the objectives of audit evidence, the conditions under which an error occurs; pre-assess the level of protection. The population must be: appropriate; complete. Stratification improves audit efficiency. The purpose of stratification is to reduce the variability of items within each stratum. This allows the sample size to be reduced. When determining the sample size, the auditor should consider whether sampling has an effect on risk reduction. The lower the risk, the higher the sample size. The auditor, when selecting items for the population being audited, should proceed from the fact that all elements of the sample have a chance of being displayed. Elements of a statistical sample can be grouped according to a natural-material attribute or according to cost. With non-statistical sampling, the auditor relies on professional judgment. The main methods of population selection are the use of tables of random numbers or computer programs, systematic selection and unsystematic selection, which are presented in Appendix III of the standard. Population selection methods: 1. Using a computer random number generator and tables of random numbers. 2. Systematic sampling, in which the number of items in the population is divided by the size of the displayed population to provide a sampling interval, and then every 10th or 100th is sampled. 3. Irregular selection. This method is not used in statistical sampling. When conducting tests of controls, attention should be paid to the organization of controls and their operation, and to identify the impact of errors on audit results. The auditor must predict monetary errors in a substantive audit. The auditor should evaluate the results of the displayed population in order to determine whether the preliminary assessment of the relevant characteristic of the population was confirmed or whether it should be revised. 41. THE ROLE OF EVALUATIONS IN AUDIT Estimated value - this is an approximate definition of the amount of an accounting item in the absence of precise methods of measurement. During the audit, this aspect can have a significant impact on the formation of financial statements. The audit of accounting estimates is covered in ISA 540. Purpose of ISA 540 - setting standards and providing guidance on the audit of accounting estimates contained in financial statements. examples: accrued revenue, deferred tax, estimated reserves, depreciation rates. The estimated value is an integral part of the company's accounting system or part of it only at the end of the period. When a reasonable estimate cannot be obtained, the auditor should consider whether a modified auditor's report (ISA 700) is appropriate. When auditing accounting estimates, the auditor may apply the following audit procedures: 1) review and process testing, which are used by management in deriving estimates, these include: - Evaluation of data and consideration of assumptions. When carrying out these procedures, the auditor should be convinced of the accuracy, completeness and relevance of the estimates made; - testing of the calculations made in the assessment, in which case the calculation procedure should be checked; - comparison of estimates of different periods. When carrying out comparison procedures, the reliability of the estimates obtained increases; — consideration of management approval procedures for accounting estimates. When carrying out these procedures, the auditor should make sure at what level the decision was made and how it is formalized; 2) an independent assessment for comparison with the existing value; 3) a review of the subsequent event to confirm the current estimate. An independent evaluation is needed to confirm existing estimates and increase their reliability. A review may reduce or eliminate the need to review or test the procedures used by management in preparing estimates. In conclusion, the auditor must give a final assessment of the estimated values, taking into account all the knowledge and skills available to him. 42. IMPACT OF SUBSEQUENT EVENTS ON THE RESULTS OF THE AUDIT OF THE FINANCIAL STATEMENTS Subsequent events have a very significant impact on the test results. Purpose of ISA 560 — setting standards and providing guidance on the auditor's responsibilities related to subsequent events. All the main provisions of ISA 560 are based on IFRS 10 "Contingencies and events occurring after the balance sheet date". According to IFRS events occurring after the reporting date, are events, both favorable and unfavorable, that occur between the reporting date and the decision to publish the financial statements. IFRS highlights two types of such events: 1) events that provide additional evidence of conditions that existed at the end of the period; 2) events that indicate conditions that occur after the balance sheet date. In Russian accounting legislation, PBU 7/98 is devoted to the reflection in the financial statements of events after the reporting date. A comparison of the definitions of events after the balance sheet date given in IFRS 10 and RAS 7 reveals one fundamental difference between them - the date closing the period in which the event after the reporting date should be considered. In IFRS 10, this date is the date the financial statements are approved for publication. Moreover, the process of approval of financial statements for publication varies depending on the management structure and methods used in the preparation and completion of financial statements. In RAS 7, such a closing date is the date of signing the financial statements for the reporting period. In this case, the date of signing the financial statements is the date that is indicated in the financial statements when they are submitted to the addresses determined in accordance with the law. Obviously, since the length of the period between the reporting date and the date of approval of the financial statements for publication or the date of signing of the financial statements for the reporting year may be different, the auditor should pay special attention to this circumstance. ISA 560 distinguishes and treats separately events occurring before the date of the auditor's report and facts discovered after the issuance of the financial statements. First of all, this is due to a clear delineation of the auditor's responsibility for the financial statements and his conclusions about it. When reviewing events that occurred prior to the date of the auditor's report, the auditor should identify all events that occurred prior to the date of the report in order to adjust the financial statements. The auditor is obliged to take into account and consider all events that may have a significant impact on the financial statements, and check whether they are reflected in the accounting and reporting. For fact checks after the date of the auditor's report, but before the issuance of the financial statements, management is solely responsible. During this period, all issues related to changes in the reporting must be agreed with the management of the entity. If the auditor does not agree with the actions of management, then he should issue a qualified or negative opinion. 43. IMPACT OF UNCERTAINTY ON AUDIT RESULTS In planning the audit and performing the audit procedures, the auditor should consider compliance with the continuity assumptions that management applies. To do this, you need to be guided by the provisions of ISA 570 "Going Concern". Purpose of ISA 570 — setting standards and providing guidance on the auditor's responsibilities in reviewing financial statements under going concern assumptions. Going concern is one of the basic assumptions of IFRS 1 (p. 23, 24). Management's assessment of the going concern assumption involves making a subjective judgment about the future outcomes of events or conditions that are inherently uncertain. Here it is necessary to take into account the subjectivity of temporal judgments in the assessment of events, the specifics, size and inclination of the subject. This subjectivity is due to the fact that the management of the company (subject) may have intentions or a reason to liquidate or interrupt its activities. The presence of such an uncertainty requires disclosure of relevant information in the financial statements. At the same time, when assessing whether the conditions of the going concern assumption are met, the entity's management should take into account all available information for the foreseeable future, which should usually cover a period of at least 12 months from the reporting date. ISA 570 considers examples of events or conditions that would cast doubt on the validity of the going concern assumption, classified into different groups of events: 1) on financial events (for example, signs indicating that debtors or creditors stop paying); 2) operating events or conditions (for example, the departure of key management without replacement); 3) other events or conditions (for example, non-compliance with legal capital requirements). The auditor is required to review management's assessment, paying particular attention to the length of the study period (greater than 12 months). When conditions or events are identified that cast doubt on the validity of the continuity assumption, the auditor should following additional procedures: 1) review management's plans for future potential events; 2) collecting sufficient evidence and considering the implications of management plans; 3) asking management to provide a written statement about future plans. The audit should describe cases where the going concern assumption is appropriate in the presence of uncertainty. It should be reflected in the financial statements in the following cases: 1) if the information is fully disclosed in the financial statements, then it is possible to make an unconditionally positive opinion on the modified statements and include information about the presence of such uncertainty in it; 2) if information is not fully disclosed in the financial statements, then the auditor is required to express a qualified opinion or an adverse opinion (ISA 700) and this must be motivated in the report. 44. CONDUCTING A REVIEW USING THE WORK OF ANOTHER AUDITOR AND EXPERTS The use of the work of third parties is due to the fact that during the audit it may be necessary to involve not only individual auditors, but a group that should be headed by the chief auditor, or other specialists whose knowledge and experience can and should be used to reduce audit risk and increase data reliability contained in the financial statements. In the case of using the work of another auditor, it is recommended that ISA 600 Use of the work of another auditor be applied. The use of the work of experts is governed by ISA 620, Use of the Work of Experts. Purpose of ISA 600 — setting standards and providing guidance when the auditor uses the work of another auditor. This standard is applied when the financial statements of several components, individually immaterial, in the aggregate are material. If the principal auditor uses the materials of another auditor, he should determine the extent to which this work has influenced the results of the audit. Chief Auditor - the auditor responsible for the preparation of the report. Other auditor - an auditor who is not the main auditor and is responsible for the reporting of the component. Component - subdivision, branch of the subject. To determine their role in the audit, the auditor should consider: - the materiality of the part of the financial statements audited by the chief auditor; - knowledge of the chief auditor business components; - the risk of material misstatement of the financial statements of components audited by another auditor; - the composition and scope of additional audit procedures to be carried out during the audit. The chief auditor should: — review the competence of another auditor; - inform the other auditor about the following aspects of the audit: independence in relation to the client, use of the results of the work of another auditor, individual procedures, work schedule, accounting and reporting requirements; - discuss with another auditor the application of certain audit procedures; - read a written statement of the procedures described by another auditor. The principal auditor should take into account all relevant factors noted by the other auditor. The chief auditor should mark places audited by another auditor. 45. COOPERATION BETWEEN AUDITORS If the principal auditor is satisfied that the work of another auditor cannot be used, he must express a qualified opinion or disclaim an opinion. In these cases, for the division of responsibility, it is necessary to indicate the part of the reporting that was analyzed by another auditor. The purpose of ISA 620 is to set standards and provide guidance on the use of an expert's work as audit evidence and to increase their reliability. Expert - individuals or firm (legal entity). An expert may be engaged or hired by the entity or the auditor. An expert is involved in cases where it is necessary: - assessment of certain types of assets (land, real estate, antiques); - determination of reserves (natural resources); - carrying out actuarial calculations; - evaluation of construction works; - conducting legal consultations. At the same time, the auditor should take into account the materiality of the article under review, the risk of misstatement and other evidence. When engaging an expert, it is necessary to take into account his professional reputation and experience. An expert is considered to be more reliable if hired by the auditor rather than invited by the entity's management. The auditor, when determining the scope of work of an expert, should determine: - goals and scope of work; - range of issues that concern the expert; — the auditor's intended use of the expert's work; - degree of access of the expert to the documents; - confidentiality; - information about the assumptions and methods that can be used by the expert. The auditor should evaluate the expert's work as audit evidence; wherein the auditor should: - make a request regarding the procedures carried out by the expert; - make a review check or test of the data used by him. The expert is responsible. If the auditor issues an unmodified opinion, he should not refer to the expert's work. 46. USE OF INTERNAL AUDIT RESULTS Internal audit is an activity of a structural subdivision of the entity, which, to one degree or another, is engaged in checking and monitoring the activities of the enterprise and its management. The effectiveness of the activities of such units largely depends on the organization of the internal control system at the enterprise. For this purpose, it is recommended that ISA 610, Reviewing the Work of Internal Auditing, be applied. Purpose of ISA 610 — setting standards and providing guidance to external auditors when reviewing internal audit work (applicable to audits of financial statements). This reservation is due to the fact that internal auditors deal not only with financial accounting, but also with management accounting and analysis. The external auditor should consider the activities of internal audit and their impact on external audit procedures. Internal audit work includes: - a review of the existing accounting systems and ICS that operate at the entity's enterprise; - establishment of adequate accounting and internal control systems and their monitoring; - research and analysis of financial and economic information; - conducting review checks affecting different aspects of the entity's activities; - verification of compliance with the law. There is a relationship between internal and external audit. It manifests itself in the fact that the methods and means that are used during these checks are the same. The use of internal audit data helps at the stage of planning an external audit, determining its nature, timing and scope. A preliminary assessment of the internal audit functions helps to correct the actions of the external auditor. This should take into account: - the status of the internal audit service in the entity's management structure; - scope of functions performed by the internal audit unit; - technical completeness and thoroughness in carrying out the work of internal auditors. If the external auditor uses the work of the internal auditor, he must evaluate and test it. 47. AUDITOR'S REPORT AND REQUIREMENTS FOR IT The basis for expressing an opinion on the financial statements is the review and evaluation of the conclusions from the audit evidence. The auditor's report must contain a clearly articulated, written opinion of the auditor on the financial statements as a whole. The auditor's report should be prepared in accordance with ISA 700, Auditor's Report on Financial Statements. Purpose of ISA 700 - setting standards and providing guidance on the form and content of the audit report (conclusion). The main elements of the auditor's report include: 1) name; 2) destination; 3) introduction; 4) description of the audited financial statements; 5) conclusion on the responsibility of the management of the subject and the responsibility of the auditor; 6) scope and nature of the audit; 7) references to ISAs or relevant national standards or practices; 8) a description of the work performed by the auditor; 9) a statement of the financial reporting principles used in its preparation; 10) expressing an opinion on the financial statements; 11) date of the report, auditor's address and signature. In the paragraph containing introductory information and a description of the audited financial statements, a list of them should be presented, indicating the date and reporting period. In paragraph 6 the scope and nature of the audit refers to the ability of the auditor to perform the required audit procedures to the extent required. The report should include an indication that the audit was planned to provide assurance that the financial statements are free from material misstatement. In this part, the report should reflect: a) examining evidence based on testing; b) evaluation of accounting principles; at) an assessment of significant accounting estimates obtained by management in the preparation of the financial statements. In paragraphs 9 and 10, when describing an expression of opinion, the auditor should indicate which financial reporting principles have been used to express an opinion about whether the financial statements are fair. The auditor's report must contain stable expressions such as: "gives a fair and accurate view", "presented fairly in all material respects". When expressing an opinion, the report should refer to those financial reporting standards on the basis of which it was prepared. The auditor's opinion on financial statements may vary. It can be unconditionally positive and modified, i.e. contain a different negative assessment of the auditor on the financial statements. In any case, the audit reports have a uniform form in order to facilitate their understanding and the task of the drafters. 48. MODIFICATION OF THE AUDITOR'S REPORT. FACTORS AFFECTING THE AUDITOR'S OPINION Audit report can be modified: - in the presence of factors that do not affect the auditor's opinion, - to draw attention to a particular aspect; - in the presence of factors influencing the auditor's opinion - an opinion with a reservation, a disclaimer of opinion, a negative opinion. Factors that do not affect the auditor's opinion include, for example, the following: a paragraph may be included in the text of the report, which should draw the user's attention to an aspect that is detailed in the appendix to the financial statements, but does not affect the auditor's opinion on the statements. This may relate to significant information characterizing the continuity of the entity's activities or in the presence of factors indicating significant uncertainty in this matter. Or, for example, in the text of the report there may be a link to a specific court case, which can help the user determine his attitude to the financial statements he is considering. Factors affecting the auditor's opinion include: a) limiting the scope of work; b) there are disagreements with management about the appropriateness of the chosen accounting policy, the methods of its application or the adequacy of disclosures in the financial statements. In case "a", a qualified opinion or a disclaimer of opinion may be expressed. In case "b", a qualified opinion or a negative opinion may be expressed. Expressing an opinion with a reservation means that there are disagreements, but they are not so serious as to express a negative opinion. A disclaimer of opinion occurs when, due to a disagreement, the scope of the audit is significantly reduced, which may affect the results of the audit. Negative opinion - when there are differences of opinion so deep that a qualified opinion does not adequately reflect the situation. In all cases of modification, the auditor should justify his motives in detail. 49. USE OF COMPARABLE VALUES IN AUDIT REPORT In accordance with ISA, comparable values in financial statements are values that characterize the financial position, cash flow, etc. and proper disclosure of information for more than one period. When identifying and analyzing comparable values, it is recommended that ISA 710 Comparable Values be used. Purpose of ISA 710 - setting standards and providing guidance on the auditor's responsibilities relating to comparables (except for ISA 720 "Other Information in Documents Containing Audited Financial Statements" and ISA 800 "Auditor's Report on Audit Engagements for Special Purposes"). The auditor should determine whether comparable amounts are, in all material respects, consistent with the underlying financial reporting principles and relevant to the auditor's financial statements. Depending on the differences between financial reporting principles in different countries, comparable values may be presented differently. In ISA, comparable values can be presented as: - relevant indicators, while various values and comparisons are included in the reporting of the current period; - comparable financial statements, while comparable values may not be part of the financial statements of the current year. The differences between the two approaches are that, for respective measures, the auditor's report refers to the financial statements for the reporting period, while for comparable financial statements, the report refers to each period for which financial statements are provided. The auditor is required to check the relevant indicators for their compliance with the principles of financial reporting, in particular, on aspects of accounting policies and related adjustments. In addition, special attention should be paid to the preparation of a report for the previous period by another auditor, as well as the necessary requirements for a new auditor participating in the audit. 50. AUDITOR'S WORK WITH OTHER INFORMATION other information - this is information of a financial and non-financial nature, contained together with the financial statements in published documents. The auditor should use ISA 720, Other Information in Documents Containing Audited Financial Statements, to deal with such information. Purpose of ISA 720 — setting standards and providing guidance for the auditor's consideration of other information on which the auditor is not required to prepare an auditor's report and which is contained in documents containing audited financial statements, such as an annual report. The auditor is required to review the other information to identify material inconsistencies with the audited financial statements. Typically, the entity publishes a document that includes the audited financial statements along with the auditor's report (annual report). It may include other financial and non-financial information: a) management reports; b) financial indicators, ratios; at) planned capital expenditures; d) employment data. In some cases, the law or contract requires a special report on other information. Running this report requires additional procedures: - providing access to other information; - consideration of other information; - the presence of significant inconsistencies and their reflection in the reporting; - there is a material misstatement of facts. Auditor is not responsible for the quality of other information. If inconsistencies are found, the auditor should determine whether amendments to the audited statements or other information are necessary. The entity's management may not agree with the auditor. In these cases, if amendments to the financial statements are required, the auditor should express a qualified opinion or an adverse opinion. If adjustments to the other information are required, the auditor should include an explanatory paragraph in his report describing the inconsistency and discrepancy with the entity's data. If the auditor finds misstatements in other information not related to the content of the financial statements being audited, he should make an inquiry or apply with a statement to the management of the entity with a proposal to eliminate this discrepancy or consult with experts. If the entity's management refuses to correct identified nonconformities, the auditor should notify either its top management or persons on whom the entity's activities depend. The auditor should consider restating other information or financial statements where he was unable to access them prior to the date of his report. In these cases, the guidance in ISA 560 Subsequent Events should be followed. 51. AUDIT REPORT WHEN WORKING WITH SPECIAL ENGAGEMENTS The Standards recommend that auditors use ISA 800, Audit Report on Audit Engagements for Special Purposes, when dealing with special engagements. Purpose of ISA 800 — setting standards and providing guidance in connection with the following audit engagements for special purposes: 1) preparation of financial statements prepared on the basis of reporting principles other than IFRS and national standards; 2) identifying the account, account elements or financial statement items by component; 3) verification of contracts for compliance; 4) summary of financial statements. The auditor should determine a clear purpose, timing, nature and scope for performing an audit engagement for specific purposes. The audit engagement report for special purposes, in addition to general sections, should include the main elements that are given in ISA 700. К financial reporting principles other than IFRS and national standards, include those used: a) when preparing an income tax return; b) when conducting accounting on a cash basis; at) when maintaining records on the basis of regulations adopted by state bodies. The report must contain a paragraph in which the relevant opinion of the auditor must be expressed. When preparing a report on the components of the financial statements, related items that have a strong impact on the financial statements should be taken into account. The report on compliance with the terms of the contract (loan agreement, bond agreement, etc.) must contain information that implies the fulfillment of the terms of such contracts, the payment of interest, the timely repayment of debt, the restriction on the payment of dividends, etc. The report must indicate whether the subject fulfills all the necessary specific conditions of this agreement (contract). When preparing a report on the summarized financial statements, the auditor must first express his opinion on the financial statements on the basis of which the summarized financial statements are prepared. Since the summary financial statements do not contain all the information required by the financial reporting principles, phrases like this should not be used. as "true and fair" or "represented fairly in all material respects". The statement of summary financial statements must contain the main elements and sections in accordance with ISA 700, and special sections, which include: 1) an opinion on whether the information contained in the summary financial statements is consistent with the information contained in the audited financial statements from which they are based; 2) a statement or reference to a note to the summarized financial statements that, in order to better understand and present them correctly, it is necessary to refer to the complete version of the audited financial statements. 52. PECULIARITIES OF PREPARING A REPORT ON FORECAST (EXPECTED) INFORMATION Expected financial information refers to information based on assumptions about future events and how the entity will act in doing so. Therefore, the expected information is forward-looking and may cover a period of one to five years. To work with this information, the auditor should use ISA 810 Examining Expected Financial Information. Purpose of ISA 810 - setting standards and providing guidance for engagements involving the verification and reporting of expected financial information, including procedures for making assumptions based on better estimates and hypothetical assumptions. The period of time considered by the auditor when examining expected information should be considered with extreme caution, keeping in mind that the extension of the forecast time reduces the realism of the forecast assumptions, and hence their reliability. Expected financial information may be in the form of a forecast or prediction. Forecast is the expected financial information that is prepared on the basis of assumptions about future potential events that the entity's management expects and about the actions that management intends to take by the time the information is prepared. Prediction is the expected financial information that is prepared on the basis of hypothetical assumptions about the future, when the entity is at the stage of organization or on a combination of exact and hypothetical estimates. The expected financial information may include all financial statements or their individual elements and may be prepared with a focus on internal users as a management tool within the enterprise and with a focus on external users - shareholders, investors, creditors. Since the expected financial information is forward-looking and cannot be supported by any primary documents on which the recognition of business transactions in financial accounting is based, the auditor cannot express an opinion on such information with the expectation of expected results. Because of this circumstance, the auditor in this case can express only average confidence. The auditor, accepting the assignment to investigate the expected information, must have sufficient knowledge of the client's business. This will help him to form an adequate idea of the audited enterprise and to make an adequate professional judgment. The auditor should obtain a written representation from the entity's management regarding the intended use of the expected financial information. The auditor's report on the study of expected financial information should, in addition to the main elements provided for by ISA 700, contain data on the degree of limitation of the dissemination of expected financial information; a statement of negative confidence regarding the level of reliability of assumptions about the expected financial information and some others. 53. STRUCTURE OF PMAP The Regulations on International Auditing Practice (PMAP) are a group of documents combined in this section that are to some extent related to the audit of financial statements in some specific areas of their activity. PMAPs do not have the force of standards, but provide practical assistance to auditors during audits. In each specific PMAP, certain aspects of the application of ISAs are considered in more detail and scrupulously than in the main text of the standards. Regulations on International Auditing Practice (PMAP)1000 "Interbank Confirmation Procedures" 1001 "Standalone personal computers" 1002 "Online Computer Systems" 1003 "Database systems" 1004 Relationship between banking supervisors and external auditors 1005 "Features of the audit of small enterprises" - Features of the audit of small economic entities 1006 "Audit of International Commercial Banks" 1008 "Risk assessment and internal control system" - Risk assessment and internal control. Characterization and accounting of the environment of computer and information systems 1009 "Audit methods using a computer" - Conducting an audit using a computer 1010 Consideration of environmental issues in the audit of financial statements 1012 "Audit of derivative financial instruments" The documents included in the PMAP can, with a sufficient degree of conventionality, be divided into several groups, classifying them according to the principle of a general focus on topics: PMAP dedicated to banking - PMAP 1000, 1004, 1006; PMAP dedicated to computer topics and computer technologies - PMAP 1001, 1002, 1003, 1009; PMAP 1005 - small businesses; PMAP 1008 - risk assessment and internal control system; PMAP 1010 - audit of environmental issues; PMAP 1012 - audit of derivative financial instruments. 54. SOME ASPECTS OF AUDIT OF BANKING ACTIVITIES PMAP 1000 - "Interbank Confirmation Procedures" The purpose of this Regulation is to provide assistance with interbank verification procedures for external independent auditors. In addition, these recommendations are also addressed to internal bank auditors and bank supervisors. Confirmation as a procedure is a response to a request to confirm the information contained in accounting documents and reports. As a result, confirmations can be classified as audit evidence obtained from an independent source. Such a source can be: - other banks located in the country and whose resident is the audited bank; - other foreign banks; - customers of the audited bank. Confirmations may be required for the following information: - balance indicators (balances on current, loan, deposit and other accounts); - off-balance sheet items (forward contracts for foreign currencies, guarantees, securities, precious metals, offset agreements, etc.); - additional information (on zero balances on correspondent accounts, on correspondent accounts that were closed during the year prior to the confirmation date, on loan repayment terms, interest rates, etc.). When making a request, the following factors should be taken into account: - materiality of account balances; - scale of activity; - reliability of the accounting system and ICS. PMAP recommends sending a request to the head office of the bank, and not to its divisions, since only the head organization can own all the information that needs to be confirmed. At the same time, regardless of the expected answers, it is desirable to receive information on all the questions posed in the request. 55. PMAP 1004 "RELATIONSHIPS BETWEEN BANKING SUPERVISION AND EXTERNAL AUDITORS" This Regulation was approved in 1989. The significance of this document is due to the role that banks play in modern economic life. This implies the role and importance of banking supervisors represented by bank inspectors and their interaction with independent auditors. This value is confirmed by the fact that in 2001 it was proposed to give PMAP 1004 the status of a standard. К The primary responsibilities of the bank's management include: 1) responsibilities for organizing a proper ICS; 2) duty to observe due diligence in the conduct of business operations; 3) obligations to comply with laws and regulations; 4) obligations to respect the interests of investors, creditors, depositors, etc. Main functions of inspectors consist in monitoring the observance of the interests of depositors and their protection. These include: - supervision of the qualifications, competence, moral and professional qualities of bank managers; - supervision of capital adequacy in order to ensure the coverage of banking risks, the creation of reserves to cover potential losses and debts; - supervising the observance of the bank's liquidity. This supervisory function can be carried out by inspectors in the form of regular interviews with bank managers, on-site inspections, the use of specially developed risk assessment systems, analysis of the assessment of the assets of the bank being inspected and the classification of its loans, assessing the effectiveness of information systems used, as well as existing accounting systems and ICS . The role of the bank's external auditor consists primarily in expressing an opinion on the reliability of the financial statements. Taking into account the specifics of banking activities, PMAP 1004 proposes to be guided by the following circumstances: - the vulnerability of certain categories of assets to abuse requires the organization of a special control environment and the entire ICS system; - the complexity of banking operations and their large volume impose special requirements on the organization of accounting in banks and on the organization of information computer systems that are used in this case; - the external auditor should pay special attention to the management structure of the audited bank - the degree of centralization and decentralization of management, etc. On the main aspects of the audit - determining the level of materiality, the degree of audit risk, the detection of abuses and errors, etc. The auditor may be guided by the relevant ISAs. In accordance with the legislation of some countries, the auditor is required to prepare analytical notes or reports that can be used in the work of the inspector. These reports may include the auditor's opinion on such aspects of the audit as compliance with licensing rules, compliance with the law when conducting banking operations, compliance with the rules of accounting and organization of the ICS, etc. The auditor, helping the inspector, should not assume his functions. 56. SOME ASPECTS OF WORK IN A COMPUTER ENVIRONMENT. PMAP 1001 PMAP 1001 - "Autonomous personal computers" describes the impact of autonomous personal computers (PCs) on the accounting system and the ICS system. The need for such a regulatory document is due to the fact that the information technology (IT) environment in which PCs are used is different from other environments. In the course of planning and organizing an audit and risk assessment, the organizational structure in which the PC is used is of great importance. PMAP 1001 refers to those PCs that can work offline and can be connected to other computers. Such an organization of the information environment may lead to the formation of additional risks. PMAP 1001 states that the control procedures that apply in the case of offline operation are simpler than in a large-scale computing environment. In this regard, the auditor should, for a better understanding of the control environment, first analyze the management system, the distribution of responsibilities in the field of data processing. Effective policies and procedures that relate to the acquisition, implementation, operation and maintenance of stand-alone PCs include the following main criteria: - rules governing acquisition, implementation and documentation; - user training; - password management and privacy policy; - norms establishing data protection, protection against viruses; - maintaining programs in working condition, etc. The impact of the PC on the accounting system and the related ICS depends on the following factors: - the degree of use of a PC for processing accounting information; - the type and significance of the processed financial information; - the nature of the programs used. The organization of the environment in which a stand-alone PC operates can significantly affect the conduct of audit procedures. If it is costly to the management of the audited entity to apply and maintain sufficient controls to be applied in a stand-alone PC environment, the auditor may choose to forego reviews of the control environment and controls and proceed directly to substantive procedures. - dynenie two previous. - Online help mode. In this mode, users can only get help about the core client files. The use of online computer systems may reduce the risk of fraud and error in the following situations: - when entering data where the operation is performed, or in the vicinity of this place; - upon immediate correction of invalid or erroneous entries or transactions; - when processing transactions immediately after they are entered. 57. PMAP 1002 "ONLINE COMPUTER SYSTEMS" PMAP 1002 provides guidance on audit procedures when using online or interactive systems. Online computer systems are systems that consist of minicomputers or a network of interconnected PCs. These systems allow users who are geographically remote from the information center or the place of business transactions to perform the necessary operations to reflect these business transactions (shipment of goods, withdrawal of money from the bank, etc.). PMAP 1002 classifies interactive computer systems according to the functions they perform as follows: - Online mode / processing in real time; - Online mode / processing of data groups. Unlike the previous mode, in batch data processing, operations after verification are added to files that contain other operations; - Online mode / processing and updating of the memorandum file. This mode is a combination of the two previous ones; - Online help mode. In this mode, users can only get help about the core client files. When using online computer systems The risk of fraud and errors may be reduced in the following situations: - when entering data where the operation is performed, or in the vicinity of this place; - upon immediate correction of invalid or erroneous entries or transactions; - when processing transactions immediately after they are entered. The increased risk of fraud and errors in the online environment can occur for the following reasons: - location of terminal interactive devices in different rooms; - providing access to files to unauthorized users and the possibility of modifying them; - failures in telecommunication systems. The auditor's activities during the online audit should be divided into the following stages: the planning stage, the stage of performing audit procedures simultaneously with online processing of data, and the stage of verification after processing data on business transactions. 58. PSAD "FEATURES OF AUDIT OF SMALL ENTERPRISES" I. Purpose of PSAD - description of the features of the auditor's actions in the audit of a small economic entity. II. Features of accounting systems and internal control of small enterprises. Small enterprises include entities on the basis of the following main features: 1) by law; 2) having specific features on the basis of which the auditor can make a judgment about their financial statements. When auditing small businesses, there may be restrictions associated with the specifics of small businesses as a business entity. Limitations on the scope of verification in the process of auditing small enterprises are primarily related to the insufficient separation of powers between employees, as well as the role of the owner of the company in its activities and the formation of the form and content of financial statements. When auditing small businesses, it is necessary to choose the right verification methodology that can adequately assess the accounting system and ICS. When auditing small businesses, attention should be paid to the following potential sources of risk: 1) irregularity of accounts; 2) the management's opinion that, in addition to the audit, a restoration of accounting may also be carried out; 3) weak separation of powers and responsibilities; 4) combining by employees the functions of accounting and asset management, which creates the basis for theft; 5) a large number of cash payments, which also increases the possibility of theft; 6) entering inconsistent data into the computer. III. Features of audit planning for small enterprises. In the absence of proper information at the preliminary planning stage, the auditor has the right to refuse to conduct an audit. It is necessary to use all auditing standards that are used for other economic entities. When assessing audit risk, one should be guided by the Materiality and Audit Risk standard and, based on the existing limitations on the reliability of the ICS and accounting, when assessing risk, rely not on the ICS, but on substantive audit procedures. IV. Features of obtaining audit evidence. Taking into account the characteristics of small enterprises and risk analysis in small enterprises, the auditor can make an opinion on the reliability of financial statements based on audit procedures on the merits. Pay particular attention to obtaining written clarifications from management. When collecting and evaluating information about small businesses, it is necessary to take into account the features of the regulatory framework: a) availability of simplified registration rules; b) availability of a simplified procedure for the presentation of accounting and statistical reporting; at) use of individually developed forms; d) the existence of state support measures for small businesses. 59. PMAP 1005 "FEATURES OF AUDIT OF SMALL ENTERPRISES" Purpose of PMAP 1005 is to consider the main characteristics of small enterprises and determine the degree of their impact on the application of ISAs. This document covers: 1) main characteristics of small enterprises; 2) guidelines for the application of ISAs; 3) recommendations for conducting an audit in cases where the auditor provides accounting services to small enterprises. The term "small business" reflects not only the size, but also the quality characteristics of the enterprise. Quantitative indicators include: balance currency; the amount of income; the number of employees. But these are not the main indicators. For the purposes of PMAP 1005 A small business is any entity that: a) ownership is concentrated in the hands of one or more owners (organization); b) limited number of sources of income, simplified accounting system, limited by ICS. Due to the combination of functions and the role of the owner in small enterprises, the term "owner-manager" appears. The fundamental difference between MCA 1005 and PSAD is that it contains detailed explanations and comments specific to each specific ISA. But here these common places are considered and given in relation to small enterprises. This approach facilitates the work of the auditor and helps him, because it gives clear recommendations regarding specific situations in the work of each specific section of the audit. The same scheme is used in other PMAPs and thus expands the boundaries of the ISA. Application of ISAs in the audit of small enterprises (for example): ISA 210. Given the small business owner's lack of awareness of the various auditing issues, the letter of engagement should clearly spell out the responsibilities of the owner-manager and the auditor. In the absence of the necessary evidence, the auditor may either refuse to conduct an audit or express a conditionally positive opinion or refuse to express an opinion (ISA 700). ISA 220. During the audit, it is necessary to take into account the requirements in the field of professionalism, competence, delegation of authority, consultation, etc. In the ISA, a large role and importance is given to which firm and who conducts the audit of small enterprises. ISA 230. At small enterprises, the most effective is documenting workflow schemes and describing the enterprise management system. ISA 320 MaterialityWhen assessing materiality, various indicators can be selected that are most suitable for this particular enterprise: profit before tax, sales proceeds, balance sheet currency. ISA 550. Since transactions with related parties are often carried out in enterprises controlled by one person, the verification of transactions with related parties should be given special attention and use audit procedures on the merits.
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