Assessing and Responding to Audit Risk in a Financial Statement Audit, October 2016

Part I Authoritative and Nonauthoritative Guidance on the Auditor’s Risk Assessment in a Financial Statement Audit

1 Overview of Applying the Audit Risk Standards .01-.42

2 Key Concepts Underlying the Auditor’s Risk Assessment Process .01-.122

3 Planning and Performing Risk Assessment Procedures .01-.147

4 Understanding the Client, Its Environment, and Its Internal Control .01-.89

5 Risk Assessment and the Design of Further Audit Procedures .01-.76

6 Performing Further Audit Procedures .01-.125

7 Evaluating Audit Findings, Audit Evidence, and Deficiencies in Internal Control .01-.79

Part II Additional Resources

Appendix

A Considerations in Establishing the Overall Audit Strategy

B Understanding the Entity and Its Environment

C Internal Control Components

D Exhibit—Management Antifraud Programs and Controls

E Illustrative Financial Statement Assertions and Examples of Substantive Procedures Illustrations for Inventories of a Manufacturing Company

F Consideration of Prior Year Uncorrected Misstatements

G Assessing the Severity of Identified Deficiencies in Internal Control

H Examples of Circumstances That May Be Deficiencies, Significant Deficiencies, or Material Weaknesses

I Suggestions for Conducting Inquiries

J Matters to Consider in Determining Performance Materiality

Part III Illustrative Audit Documentation Case Study

Appendix

K Illustrative Audit Documentation Case Study: Young Fashions, Inc.

K-1 Young Fashions: Understanding of Entity and Its Environment

K-2 Young Fashions: Evaluation of Entity-Level Controls

K-3 Young Fashions: Understanding of Internal Control—IT General Controls

K-4 Young Fashions: Evaluation of Activity-Level Controls—Wholesale Sales

K-5 Young Fashions: Assessing Risks of Material Misstatement and Linkage to Further Audit Procedures

K-6 Young Fashions: Evaluation of Uncorrected Misstatements and Assessment of Control Deficiencies

L The Effect of Group Audits on Planning and Determining Materiality

M Overview of Statements on Quality Control Standards

N Schedule of Changes Made to the Text From the Previous Edition

Index of Pronouncements and Other Technical Guidance

Subject Index