Page 261 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
should enable evaluation of the bank's evolving risk profile.

(CNO-BA.140) Stage III: Risk Assessment
Identifying and Assessing the Risks of Material Misstatements:
Risk Identification: SA 315 mandates the auditor to pinpoint and evaluate risks of material misstatement at
both the financial statement and assertion levels.
Assess the Risk of Fraud including Money Laundering:
SA 240: According to SA 240, the auditor aims to detect and evaluate risks of material misstatements in
financial statements due to fraud and gather adequate audit evidence on identified misstatements. Auditors
should have an attitude of professional skepticism to recognise potential misstatements resulting from fraud.
RBI Guidelines: The RBI has set forth "Know Your Customer Guidelines – Anti Money Laundering
Standards" directing banks to implement policies and procedures to both prevent and report money
laundering activities.
Assess Specific Risks:
Industry Risks: Auditors must pinpoint and evaluate specific risks of material misstatement at the financial
statement level, especially those pertinent to the banking sector.
IT Risks: Consideration should also be given to risks associated with the use of IT within the industry.
Risk Associated with Outsourcing of Activities:
Outsourcing Benefits: Contemporary banks extensively outsource to cut costs and leverage external expertise.
Outsourcing Risks: Banks face inherent risks with outsourcing and must adeptly manage them.

(CNO-BA.160) Stage IV: Execution

Engagement Team Discussions:
Understanding: Gain insight into the bank and its environment.
Internal Control: Evaluate the bank's internal control mechanisms.
Assessment: Determine the potential for material misstatements in financial statements.
Response to the Assessed Risks:
SA 330: SA 330 mandates auditors to address assessed risks of material misstatement at the financial statement
level.
FST Level: Formulate overall responses based on FST Level assessed risks.
Assertion Level: Execute audit procedures tailored to the nature, timing, and extent of assessed risks at the
assertion level.
Establish the Overall Audit Strategy:
Overall audit strategy: According to SA 300, the aim is to plan the audit for effective performance. The audit
engagement partner must set the overall audit strategy before starting the audit.
Involvement: Engage key team members and relevant specialists in shaping the audit strategy based on the
audit engagement's characteristics.
Audit Planning Memorandum:
The auditor should create an audit planning memorandum to:
• Outline the scope and details of the audit procedures.
• Emphasize key issues, risks, and decisions on control reliance.
• Demonstrate proper audit planning and response to various engagement risks.
Determine Audit Materiality:
Relationship: Understand the connection between audit materiality and audit risk.

Determination: Audit materiality is based on professional judgment, bank knowledge, engagement risk
assessment, and financial statement reporting requirements. Decisions on materiality consider surrounding
circumstances and are influenced by the size, nature, or combination of misstatements.

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