IRBA Newsletter 26

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I NSPECT I ONS c o n t .
Fraud and significant risks
?Fraud risks were identified on the audit file; however these
were not identified and treated as significant risks as
required by ISA 240.
?Revenue was not assessed as a significant risk on the audit
file and there was no documented justification as required
by ISA 240.
?There were no significant risks identified on the audit file.
?No documented verification of journals, even though it is
deemed a significant risk by ISA 240.
?No documented Related Party completeness assessment.
Risk of Material Misstatement (RoMM)
?RoMM for all balances, classes of transactions and
disclosures at the assertion level was assessed as low or
medium.
?RoMM was assessed as low, but there were no test of
controls documented on file to reduce the control risk to a
risk level that is lower than high.
Sampling
?There was no documented link between the risk
assessment and sample sizes. (The higher the risk the
greater the sample size.)
?There was no evidence on file that all balances and
transactions equal to or greater than performance
materiality were verified by the engagement team.
Disclosure and presentation
?Incorrect/insufficient disclosure in the annual financial
statements, but no documented consideration by the
engagement teamof the impact on the audit opinion.
?Incorrect classification of loans as long and short term.
Consolidation
?No documented consideration of whether the
consolidation exemption criteria were met and the
possible impact on the audit opinion.
Other failures to identify material misstatements and/or obtain
sufficient appropriate audit evidence at assertion level
?Property, plant and equipment (valuation) assessment of
significant components, method of depreciation, useful
lives and residual values.
?Revenue - completeness and occurrence.
?Shareholders’ and directors’ loans – measurement in terms
of the framework and impairment.
?Inventory – classification as an asset or expense.
?Deferred tax – measurement and justification of deferred
tax assets.
Firm Inspections
The following examples of firm findings resulted in the most
non-satisfactory inspection outcomes:
?High risk findings not identified and appropriately
addressed on engagement quality control/pre-issuance
reviews (engagement performance element of ISQC1).
?High risk findings not identified and appropriately
addressed on post-issuance reviews (monitoring element
of ISQC1).
Recommendation
Firms and practitioners are encouraged to analyse the above
deficiencies, and if applicable, incorporate sustainable
solutions into their processes of continuous improvement.
Most of the examples listed above are directly as a result of the
following:
?Insufficient and/or inappropriate audit evidence
documented to support the audit opinion;
?Failure to identify and assess material misstatements in
the financial statements; and
?Deficiencies in the effectiveness of internal quality control
review (EQCR andMonitoring elements of ISQC1).
1 5
Imre Nagy
Director: Inspections
Telephone: 087 940 8800
Fax: 087 940 8874
E-mail:
Issue 26 April - June 2014