The major risk areas pertaining to SBL were seen with inherent risks such as nature of business, changes in industry increasing inflation and sustainability initiatives such as water conservation. In addition to this, control risk needs to be identified information from different locations, changes in staff, changes in work environment, media reports and risks relating to fraud. The measures relating to audit procedure for the inherent and control risk of SBL have been discussed with classification testing, completeness testing, cut off testing, occurrence testing, existence testing, valuation testing, rights and obligations testing (Yoon, Hoogduin and Zhang 2015).
Audit procedures for SBL have considered the adherence of quality of financial information with number of perspectives. The exact procedures will be associated to the use of procedures which are dependent on nature of business along with audit assertions to improve the present concerns associated to audit assertions (Cohen et al. 2017). The six procedures followed for evaluation of audit risk in SBL are enumerated below as follows:
Classification testing- SBL needs to consider classification testing for the transactions to know whether they are correctly recorded in the accounting records. It needs to be ensured that the auditors comply with “ASA 315-Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement”. For instance, SBL faces considerable amount of risk associated to its operating environment which includes lending of money. However, the bank faces several environmental concerns which are associated to risk off defaults. The implementation of classification testing as per ASA 315 will require the auditor to perform assessment of risk based on understanding the entity is environment including the internal control(Auasb.gov.au. 2018).
Completeness testing-The various types of audit procedures such as testing of whether there is any missing entry in the accounting record will be conducive for maintaining fairness and accuracy of the financial reports. The implementation of ASA 500 will be appropriate in gaining better approach towards audit evidence. In addition to this, “Auditing Standard ASA 330 The Auditor’s Responses to Assessed Risks” will contribute to the completeness testing by data mining the risk of material misstatement, financial closing process and identifying other significant risks (Chan and Vasarhelyi 2018). The changes associated to the work environment of SBL needs to be understood by the control risks which are associated to different types of ramifications in corporate policies. The main features as per ASA 330 will be beneficial in designing and performing audit procedures in responding to the assessed risk of material statement and also responding to the same. The auditor’s assessment of risk pertaining to ASA 330 will also include the expectations of operating efficiency along with substance of procedures which cannot be provided with appropriate audit evidence. Lastly, such a measure will document specific matters associated to the audit procedures which will be based in response to the assessed risks. The completeness testing will further ensure that enquiry is made to the clients have included the additional obligations which were not recognized in the financial statements. Therefore, completeness testing will ensure a holistic approach towards issues such as changes in industry and introduction of new services such as EFT based transactions (Auasb.gov.au. 2018).
Cutoff testing- The significant nature of the audit procedures followed with cut-off testing needs to be determined with the fact whether transactions are recorded in the present reporting period. For instance, control risks such as changes in staff may lead to failure of the IT department to track a particular issue and report the same within a specified date. The issues concerning the timeliness due to the risks of changes needs to be amended by cut-off testing. It may be also seen that various types of services provided by the bank may be done on the last day of the month which will have an effect on the next month. Therefore, cut-off testing will ensure that the bank will to adopt predefined set of measures for implementing and ascertaining recognition of the transactions as and when they have occurred. The compliance of the auditing standards as per “ASA 200- Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards”will ensure that auditing functions are in conjunction with ASA 101. This will ensure that the company has maintained alternative measures in case there is any instance of failure of the company to track the transactions related to timeliness. The implementation of ASA 230 will be further conducive in stating about the reasons for inability to comply with a particular audit procedure (Legislation.gov.au. 2018).
Occurrence testing:The audit procedure as per the occurrence testing will test whether the transactions with the client has actually occurred. Since SBL is exposed to control risks such as Fraud Risk the transactions pertaining to Joe and other employees needs to be investigated with a occurrence testing. The consideration of such a testing needs to be complied with Auditing Standard “ASA 240- The Auditor’s Responsibility to Consider Fraud in an Audit of a Financial Report”. This will assess and identify the material risks due to fraud in the social level. In addition to this it will be also respond to the audit procedures by overriding the controls (Legislation.gov.au, 2018).
References
Auasb.gov.au. 2018. Auditing Standard ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards [online] Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_200_Compiled_2015.pdf [Accessed 12 Sep. 2018].
Auasb.gov.au. 2018. Auditing Standard ASA 330 The Auditor’s Responses to Assessed Risks [online] Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_330_27-10-09.pdf [Accessed 12 Sep. 2018].
Chan, D.Y. and Vasarhelyi, M.A., 2018. Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.
Cohen, J., Krishnamoorthy, G. and Wright, A., 2017. Enterprise Risk Management and the Financial Reporting Process: The Experiences of Audit Committee Members, CFO s, and External Auditors. Contemporary Accounting Research, 34(2), pp.1178-1209.
Legislation.gov.au. (2018). ASA 240 – The Auditor’s Responsibility to Consider Fraud in an Audit of a Financial Report – April 2006 . [online] Available at: https://www.legislation.gov.au/Details/F2006L01368 [Accessed 12 Sep. 2018].
Legislation.gov.au. 2018. ASA 315 – Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement – April 2006 . [online] Available at: https://www.legislation.gov.au/Details/F2006L01372 [Accessed 12 Sep. 2018].
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing & assurance services. McGraw-Hill Education.
Yoon, K., Hoogduin, L. and Zhang, L., 2015. Big Data as complementary audit evidence. Accounting Horizons, 29(2), pp.431-438.
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