SA–330 The Auditor’s Responses to Assessed Risks(Effective 01/04/2008)

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

Substantive procedure – An audit procedure designed to detect material misstatements at the assertion level. Substantive procedures comprise:

• Tests of details (of classes of transactions, account balances, and disclosures), and
• Substantive analytical 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

1. The auditor shall design and perform tests of controls to obtain SAAE as to the operating effectiveness of relevant controls when:

• The auditor’s assessment of risks of material misstatement at the assertion level includes an expectation that the controls are operating effectively or
• Substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level. 

2. In designing and performing tests of controls, the auditor shall obtain more persuasive audit evidence the greater the reliance the auditor places on the effectiveness of a control.

Nature and Extent of Tests of Controls

In designing and performing tests of controls, the auditor shall:

1. obtain audit evidence about the operating effectiveness of the controls, including:

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

2. Determine whether the controls to be tested depend upon other controls (indirect controls), and if so, whether it is necessary to obtain audit evidence supporting the effective operation of those indirect controls. 

Timing of Tests of Controls

1. The auditor shall test controls for the particular time, or throughout the period, for which the auditor intends to rely on those controls, in order to provide an appropriate basis for the auditor’s intended reliance. 
2. Using audit evidence obtained during an interim period:- When the auditor obtains audit evidence about the operating effectiveness of controls during an interim period, the auditor shall:

• Obtain audit evidence about significant changes to those controls subsequent to the interim period; and
• Determine the additional audit evidence to be obtained for the remaining period. 

3. Using audit evidence obtained in previous audits:- If the auditor plans to use audit evidence from a previous audit about the operating effectiveness of specific controls, the auditor shall establish the continuing relevance of that evidence

• 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 in audit

Note:- When 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.

Factors to be considered in determining whether to rely on TOC performed during previous years

1. The effectiveness of other elements of internal control
2. The risks arising from the characteristics of the control, including whether it is manual or automated
3. effectiveness of general IT-controls
4. risks of material misstatement and the extent of reliance on the control.
5. effectiveness of the control and its application by the entity

1. Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.
2. The auditor shall consider whether external confirmation procedures are to be performed as substantive audit procedures.

Substantive Procedures Related to the Financial Statement Closing Process:-The auditor’s substantive procedures shall include the following audit procedures related to the financial statement closing process:

• Agreeing or reconciling the financial statements with the underlying accounting records; and
• Examining material journal entries & other adjustments made during preparation of financial statements. 

Substantive Procedures Responsive to Significant Risks:-When the auditor has determined that an assessed risk of material misstatement at the assertion level is a significant risk, the auditor shall perform substantive procedures that are specifically responsive to that risk.

When substantive procedures are performed at an interim date, the auditor shall cover the remaining period by performing:

1. substantive procedures, combined with tests of controls for the intervening period; or
2. if the auditor determines that it is sufficient, further substantive procedures only;

that provide a reasonable basis for extending the audit conclusions from the interim date to the period end. 

Note:- Extent of Substantive procedures depends on results of Control assessment

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