Generally, ABREMA is consistent with International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants. However, there are several differences between concepts referred to in ABREMA and those underlying ISAs. The author of ABREMA believes that these should remain for the reasons given below and in order for the model to retain its internal validity and cohesiveness.
International Standards on Auditing refer to the concept of an acceptable level of audit risk. For example, ISA100 "Assurance Engagements" states that the "practitioner plans and performs the engagement so as to reduce to an acceptable level the risk of expressing an inappropriate conclusion." However, ABREMA takes the concept further and states that auditors evaluate the acceptable level of audit risk (as very low, low or moderate) based on the expected reliance on the financial statements by users of the financial statements: the greater the expected reliance, the lower the acceptable level of audit risk. This extended concept of the acceptable level of audit risk is an integral part of ABREMA.
ISA500 "Audit Evidence" states that management implicitly or explicitly makes certain assertions regarding the financial statements and that the assertions used by auditors fall into one of the following 13 categories:
In ABREMA, it is argued that there are only three ways in which the financial statements may be misstated. A misstatement of completeness occurs when an item which should be included is not included; a misstatement of validity occurs when the information includes an item that should not be included; a misstatement of accuracy occurs when the information includes an item that should be included, but it is not included accurately. Accordingly, there are just three financial statement assertions of concern to auditors, with slightly different definitions at each of the three levels of aggregation. However, the definitions of these three assertions for each of the three levels of aggregation embrace the meanings underlying the 13 ISA categories of assertions. (Note that ISA500.18 states that the auditor may express assertions differently, provided all aspects have been covered.)
Also ISAs only recognize financial statement assertions and, unlike ABREMA, do not specifically recognize internal control assertions. In ABREMA, it is argued management asserts that internal control procedures are effective as to both design and operation.
In an audit context, strategic/long-term planning refers to identifying the criteria used to determine whether or not to accept/retain an entity as an audit client; tactical/medium-term planning refers to the criteria used to determine the audit approach for a specific audit engagement; operational/short-term planning refers to the development and revision of the various audit programs on an audit engagement.
IAS300, however, states that strategic planning refers to the determination of the audit approach for a specific audit engagement. (ISA300.6 states "The auditor shall establish an overall audit strategy that sets the scope, timing and direction of the audit, and that guides the development of the audit plan"). ABREMA refers to this medium-term planning activity as setting the overall tactical plan rather than as setting the overall audit strategy which implies long-term planning.
Two of the methods of gathering evidence referred to in ISA500 "Audit Evidence" are Inspection of records or documents and Inspection of tangible assets. In ABREMA these are referred to as "Inspection" and "Physical examination", respectively. In addition, ISA500 does not distinguish evidence gathered through vouching from evidence gathered through inspection of records or documents.
In ABREMA, inspection and vouching are defined as two different evidence gathering activities. Both activities require the auditor to examine documentation in support of management's assertions, but inspection is primarily relevant to the examination of evidence relating to the effectiveness of internal control procedures (i.e. internal control assertions), whereas vouching is relevant only to the examination of evidence relating to the completeness, validity or accuracy of account balances and underlying classes of transaction (i.e. financial statement assertions).
ISA315.24 "Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement" states that the auditor shall identify and assess the risks of material misstatement at the financial statement level, and at the assertion level for classes of transactions, account balances, and disclosures. (Emphasis added.)
In ABREMA, the auditor only performs formal audit risk evaluations at the class of transaction level when the audit approach for a particular account balance is in-depth. Otherwise, the auditor evaluates the achievable level of audit risk simply at the account balance assertion level, recognizing that additional risk may exist in relation to classes of transactions underlying the account balance, and incorporating this subsidiary risk into the evaluation at the account balance assertion level. Properly applied, this approach increases audit efficiency without compromising audit effectiveness.
In ABREMA, anomalous exceptions are broken down into two further categories - atypical exceptions and systematic exceptions. Broadly, an atypical exception is a "one off" exception that is unlikely to have occurred more than once. A systematic exception is a non-random exception that is likely to have occurred more than once on positively identifiable occasions. This further categorization, it is argued, facilitates a more accurate quantitative evaluation of the extent of exceptions in the population.
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