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ISA 330
The auditor’s responses to assessed risks.
Contents

1. Scope of ISA 330

2. Objective of ISA 330
3. Definitions
4. Requirements of ISA 330
5. Documentation

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Scope of ISA 330 – Auditor’s responses to assessed risks.

This International Standard on Auditing deals with the auditor’s responsibility to design and
implement responses to the risks of material misstatement identified and assessed by the
auditor in accordance with ISA 315 in the audit of the financial statements

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Overall Response

ISA 330 lists the following overall responses that may be used by auditors in order to address
the assessed risks of material misstatement at the financial statement level:

a. Emphasising to the audit team the need to maintain professional scepticism.

b. Assigning more experienced staff, those with special skills, or using experts.
c. Providing more supervision.
d. Incorporating additional elements of unpredictability in the selection of further audit
procedures to be performed.
e. Making general changes to the nature, timing or extent of audit

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Objective of ISA 330

The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the
assessed risks of material misstatement, through designing and implementing appropriate
responses to those risks.

Recall that;
AR = IR + CR + DR

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Definitions

Substantive procedures – An audit procedure designed to detect material misstatements at

the assertion level. These include:
1. Tests of detail
2. Analytic Procedures

Test of controls – An audit procedure designed to evaluate the operating effectiveness of

controls in preventing, or detecting and correcting, material misstatements at the assertion
level.

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Requirements of ISA 330

The auditor shall:

1. Design and implement overall responses to address the assessed risks of material
misstatement at the financial statement level.

2. Design and perform further audit procedures whose nature, timing and extent are
based on and are responsive to the assessed risks of material misstatement at the assertion
level.
- In designing further audit procedures, the auditor shall always keep in mind the level of audit risk.

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Requirements of ISA 330 – continued
Tests of Controls

The auditor shall:

Design and perform tests of controls to obtain sufficient appropriate audit evidence as to the
operating effectiveness of relevant controls.
-The ISA tells us that testing controls for operating effectiveness is required when we want to
obtain comfort from those controls, or when ____________ alone will not provide us with
sufficient appropriate evidence at the assertion level.

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Tests of Controls – Continued

The nature of a test of control can be:

- Enquiry and confirmation.
This is a relatively weak source of evidence because the financial controller might exaggerate his or her efforts.

- Inspection.
- Observation.
- Recalculation and re-performance.

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Tests of Controls – Continued

The auditor shall also obtain evidence as to:

1. How the controls were applied at relevant times during the period under audit
2. The consistency with which they were applied; and
3. By whom or by what means they were applied.

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Tests of Controls – Continued

ISA 330 also specifies that :

• If there have been changes that affect the continuing relevance of the audit evidence from
the previous audit, the auditor shall test the controls in the current audit.
• If there have not been such changes, the auditor shall test the controls at least once in
every third audit, and shall test some controls each audit to avoid the possibility of testing all
the controls on which the auditor intends to rely in a single audit period with no testing of
controls in the subsequent two audit periods.
• If the auditor plans to rely on controls over a risk the auditor has determined to be a
significant risk, the auditor shall test those controls in the current period.

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Requirements of ISA 330 – continued
Substantive Procedures

Substantive tests must be performed for each material class of transactions, balance or
disclosure. They include tests of details of classes of transactions, account balances, and/or
substantive analytical procedures.
For significant risks we must perform substantive procedures that will respond specifically to
those risks. If we choose to only do substantive procedures on key risks, we must include
tests of details.
Tests of details include:
1. Enquiry and confirmation
2. Inspection
3. Observation
4. Re-calculation and re-performance

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Substantive Procedures- continued

We must also consider whether external confirmation procedures are to be performed as audit
procedures. Mainly these would apply in responding to risks involving:
- Bank balances
- Accounts receivable
- Inventories held by third parties
- Amounts due to lenders / Accounts payable

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Substantive Procedures- continued

In some situations, we may choose to do substantive procedures at an interim date. However

this increases the risk that we will miss material misstatements at the period end, and the
longer the period between interim and final audits, the higher the risk. If misstatements are
detected at an interim date, the ISA requires us to change our related assessment of risk and our
planned substantive procedures covering the remaining period. This may include extending or
repeating procedures at the period end.

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Requirements of ISA 330 – continued

The auditor shall also:

3. Perform audit procedures to evaluate whether the overall presentation of the financial
statements (including related disclosures) is in accordance with the applicable financial
reporting framework (IFRS/GAPSME)
4. Based on the audit procedures performed and the audit evidence obtained, the auditor shall
evaluate whether the assessments of the risks remain appropriate.
5. Conclude whether sufficient appropriate evidence has been obtained based on
judgement (influenced by many factors including understanding of the entity and its
environment)

NOTE: The form and extent of audit documentation is a matter of professional judgement, and is influenced by the size, nature and
complexity of the entity and its internal control, availability of information from the entity and the audit methodology and technology
used in the audit.

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Documentation

The auditor shall include in the audit documentation:

1. Overall responses to address the assessed risks, including the nature, timing and extent of
the further audit procedures performed.
2. The results of the audit procedures (test of controls/substantive), including the
conclusions where these are not otherwise clear.
3. If the auditor plans to rely on controls testing to assess the risk then documentation shall
include conclusions reached about relying on such controls.

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Documentation
Audit documentation should include:
1. Objective
Showing the purpose of the test, specifically linking to one of the audit assertions as defined in ISA 315

2. Work performed
Recording the details of the specific audit test performed, incl. the size of the sample and selection method

3. Results
It is not enough to say that you tested 10 items and they were all fine. You need to make clear which 10 items you looked at and include
an audit tick showing exactly what audit work was performed on them.

4. Evaluation
Recording details on the impact of any errors found.

5. Conclusion
Confirming whether or not the audit assertion has been satisfied. The working paper must also document who performed the audit
work and the date that the audit work was completed. It should also indicate who reviewed the audit work and the date of review.

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 Any Questions?

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Quiz

Q1. The scope of ISA 330 is to guide auditors to:

a. Obtain sufficient evidence regarding the risks assessed

b. Identify and assess risks of material misstatement
c. Design and implement responses to the risks of material misstatement identified
d. None of the above

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Quiz- Answer

Q1. The scope of ISA 330 is to guide auditors to:

a. Obtain sufficient evidence regarding the risks assessed

b. Identify and assess risks of material misstatement
c. Design and implement responses to the risks of material misstatement identified
d. None of the above

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Quiz

Q2. What does ISA stand for?

a. Internal standards of Auditing

b. International standards of Auditing
c. International standards of Accounting
d. Internal standards of Accounting

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Quiz- Answer

Q2. What does ISA stand for?

a. Internal standards of Auditing

b. International standards of Auditing
c. International standards of Accounting
d. Internal standards of Accounting

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Quiz

Q3. It is important to maintain ______________ throughout the process of responding to

assessed risks.

Which of the following is MOST appropriate?

a. Professional competence
b. Due diligence
c. Professional Skeptism
d. Integrity

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Quiz- Answer

Q3. It is important to maintain ______________ throughout the process of responding to

assessed risks.

Which of the following is MOST appropriate?

a. Professional competence
b. Due diligence
c. Professional Skeptism
d. Integrity

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Quiz

Q4. Test of Controls must ALWAYS be used to obtain audit evidence.

True of False?

a. True
b. False.

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Quiz- Answer

Q4. Test of Controls must ALWAYS be used to obtain audit evidence.

True of False?

a. True
b. False.

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 Thank you for your attention!

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