Module 5 - Risk Model & Key Accounting Estimates( PCAS)

Identified Audit Risk 

Audit risks database

Throughout CCH Audit Automation there is the facility to add risks.  These risks are termed identified audit risks. 

To add a general risk select Identified Audit Risks from the planning folder in the main index and the Associated audit risks dialog will be displayed. This shows all audit risks already entered in respect of the question/source. From this the user can add, edit or remove risks.

 

The identified risk screen has been updated to allow the assessment of risk at the assertion level. The financial impact, likelihood of misstatement and risk assessment and response options will now record these selections for each assertion instead of at the risk level.

To add a new risk, click on Add, to edit an existing risk, select the risk and click on Edit. Adding or editing a risk is carried out through the following dialog.

 

The risk assessment and response area will now appear as the default risk assessment approach for identified risks when the ISA 315 option is selected in the master pack.

When selecting the profile 1 is low and 5 is high. A reason for the profile settings must be given before exiting the screen and the saving of this reason can be forced by right clicking. 

Control risk is not allowed to be assessed unless the user is placing reliance on the controls and therefore will only become active for selection if the reliance on tests of controls is changed from none.

Risk of material misstatement will update to the same selection of inherent risk and will only become active for selection for the user to update if the control risk is assessed.

The assertion text boxes in right hand panel can be used to enter additional text for each assertion as appropriate.  There are also check boxes for significant risk and Fraud risk which if ticked will dispaly in the risk report

The option to pick Work programme to select tests from Pool or design new tests will become highlighted once the inherent risk has been assessed.  However, selecting tests does not have to be done at this stage and can be done at any time before signing off planning.  

Financial statement level risks

A new option has been added to allow assessment of the risk at the financial statement level. Upon selecting this option, the financial impact and likelihood options will be disabled. The risk assessment and audit response area will have the control risk and risk of material misstatement deactivated as the assertions can no longer be assessed individually.

The material classes not otherwise tested checkbox if ticked will also inactivate the risk profile settings

Identified risks summary

The identified risk summary shows a matrix which can be filtered using the check boxes at the bottom.  As there is now potential to have multiple assessments of assertions, the summary screen will only show the assertion with the highest assessed risk.

The risk summary report can also be run by clicking the [OK] button.  This report also displays all procedures selected for each risk

 

Key Accounting Estimates Database

A new area has been created to record details of key accounting estimates. This area works in the same way as the updates to the identified risks screen with regards to assessing the key accounting estimates at the assertion level. 

There are a number of different text fileds in right hand column which can be populated as appropriate.

Key accounting estimate work programs

To pick the audit tests, select the work programme button and then select the pool button - the test will then display and can be selected by ticking the checkbox in the right hand column. If key accounting estimate tests have been created at the master pack level, they will flow through to this screen for selection. If new tests need to be created then the [Add] can be used to do this.

 

When working in the current audit file the key accounting estimate tests that have been selected will be included in the combined audit program. When the review mode option is selected the key accounting estimate tests will appear in their own work program

 

Area risk assessment

To access area risk assessment, select Risk assessment and audit programme review from the Planning folder of the Main index. It can also be accessed via the Planning menu.

All audit areas where risk needs to be assessed and that have balances in the TB will be included in the list displayed.   Other areas can be shown by selecting the ‘show all audit area’ button. 

There may be some circumstances where you would like to include areas that have been excluded by the system. For example, if you are working on a projected trial balance and you know that this does not reflect something that has happened, for example the acquisition of an investment.

If you want to force an area to be active even if it has no balance this can be achieved by selecting the show all audit areas button and right clicking on the relevant area then selecting Force area to be active.

Creating a new area

From the above screen new audit areas can be created by selecting an area to be replicated and clicking on the Create new area button.  For example, if sales had two very different income streams and different sets of tests needed to be designed for each stream a separate area could be created for each stream.

Audit area window

From this screen you can assess the risk associated with each audit area and the matrix at bottom works in a similar way to identified risks. Select each area in turn and click the Area risk assessment button, or double click on the area name and the Area risk assessment dialog will be displayed:

This dialog will contain columns for each assertion that is relevant to the area selected, together with an All assertions column. The column headings contain the code that is used to identify each assertion. To see the full description of the assertions, move the mouse pointer to the column heading. By selecting the check box 'Use one risk assessment for all assertions' only the 'All' will be activated and you wont be able to assess risk on indidual assertions.  Please note there are tabs in top left hand panel to displayidentified risks, key accounting estimates and key controls

The system lists in the top section all risks that have been identified for the area as well as an information banner showing balance in TB, materiality, inherent risk and control environment.   The purpose of this is to give the user the information they need to make decisions required on overall risk, whether to place reliance on controls etc. in the bottom section of the screen.

When the area is first accessed, the system will set all fields to the lowest level i.e. None or N\A. The identified risks should have already been dealt with.  Therefore when making decisions about overall risk it is really just residual risk that needs to be considered.  The system will assume that you are going to assess risk on an assertion by assertion basis and hence will insert “N/A” in the ALL column. However, you may have the ‘use one risk assessment for all assertions’ tick box ticked, in which case N/A will be in all individual assertion columns, and only the ‘ALL’ column is available to edit.

You may now indicate your assessment of the overall risk in respect of each assertion, the level of reliance, if any, that you are going to place on controls and non-sampling methods. To do this, select the cell containing the current setting and click on the drop-down button. Select the level, and the system will update the cell and recalculate residual risk for the assertion. On making the change, the system will record the level you have selected and display the Justification dialog for completion:

This records the change you have made and waits for you to enter your reasons for the selection. Enter the details and click on OK.

As you make your selections, you will see that any level of reliance or risk that is other than the lowest will be shown in red and this is an indication that audit procedures need to be defined in respect of the item but none currently exists.

As you make your selections, the setting in the row residual risk covered by sampling may change depending on the selections.

As you move the mouse pointer over the levels selected, the system displays the initials of the person who made the selection and the date. 

If you close the risk assessment dialog without defining procedures in all areas required, the system will display a message indicating that this is the case. You may, however, still exit from the routine and come back later to finish the planning.

Designing work programmes

To define the audit procedures in respect of each element on which reliance is being taken or a residual risk exists, either double click on the cell, or select it and click on the Select tests for highlighted assertion button and the following dialog will appear:

The information banner at the top of the dialog shows key data in respect of the area/assertion for which the procedures are being designed. Any tests that have already been selected or entered will be displayed.

You can select tests to support the reliance or provide comfort on the risk. These can be taken from the pool of tests. You can also add your own tests where appropriate tests are not present.

Pool

Click on this button to add tests from the pool. The Pool of tests dialog will be opened listing all tests that match the criteria for the programme being designed

Note that the tests are colour coded:

• Blue or Black Tests that have already been selected for inclusion either in this work programme or elsewhere. If the tests are included in the current programme the checkbox by the test will be ticked and greyed out.
• Green Tests that are not currently selected to be carried out for the client but which may be relevant.
• Silver Tests that would not appear to be relevant to the client.

If the tests that you are interested in are linked to other assertions for the area, either select the assertion from the Show drop down list, or select All from the drop down to show all tests for the financial statement area.

To select tests to include in the work programme, place a tick by each one required. Finally, click Add ticked and they will be added to the programme.

The source column shows the source of the test.

If you wish to carry out a test of your own design, click on New and you will be presented with a blank customise test dialog:

Enter the details for the test and click on OK.

You are now free to edit the tests you have added or remove them if they have been selected in error. Any tests that are edited or created will have a blue dot in the umber column to indicate this.

If you close the risk assessment dialog without defining procedures in all areas required, the system will display a message indicating that this is the case. You may, however, still exit from the routine and come back later to finish the planning.

Risk Reports

There are three reports that can be selected from the audit area risk dialog.  The area settings report is probably the most useful one as this shows all the selections made across all audit areas.