Page 83 - CA Inter Bhaskar Vol 1

CA RAVI TAORI Selection of AP
RISK ASSESSMENT AND INTERNAL CONTROL
AUDIT BHASKAR CH 03 - PART 01 Policies Related Need to involve Reason for change in AP Significant new or
Chart of
Accounting
Application of AP
Points

E.g.,

Change in AP to make
specialist
greater comparability
revised disclosure
Change in
- Entity's Environment
- Financial Condition
- Activities

Accounting The entity's selection and application of accounting policies, including the reasons for changes
Policies & thereto. The auditor shall evaluate whether the entity's accounting policies are appropriate for its
Related Points business and consistent with the applicable financial reporting framework and accounting policies

used in the relevant industry.

Chart of Measurement & Review
Financial
E.g.,
Performance
Related Points Analyst Credit Rating
Reports agency reports

Financial The measurement and review of the entity's financial performance.
Performance
& Related
Points Example

1. Importance of Performance Measures
Management monitors and reviews areas they consider important using performance
measures.
These measures may create internal or external pressures on the entity to meet targets.

2. Impact on Auditor’s Risk Assessment
Such pressures may lead management to take corrective actions or, at times, misstate
financial statements.
Understanding performance measures helps the auditor evaluate whether performance
pressures increase the risk of material misstatement, including fraud risk.

3. Examples of Performance Measures
Key Performance Indicators (KPIs) – both financial and non-financial.
Trends, ratios, and operating statistics used for internal decision-making.
Budgets, forecasts, variance analysis, and department-level performance reports.
Credit rating agency reports used to assess financial credibility externally.

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