The auditor evaluates AR*2 based on the expected reliance at the financial statement level adjusted for any increased or reduced reliance on the account balance assertion. Similarly, the auditor evaluates IR2 and CR2 based on initial evaluations at the financial statement level adjusted for any increased or reduced risk at the account balance assertion level. DR*2 is calculated from detection risk table; the audit approach is taken from the audit approach table.
| Account balance | Est'd value ($000) |
Assertion | AR*2 | IR2 | CR2 | DR*2 | Audit approach |
|---|---|---|---|---|---|---|---|
| Retail inventory | 6,500 | Completeness | M | M | H | M | Substantive and part analytical |
| Validity | VL | H | L | L | Systems and part substantive | ||
| Accuracy | L | M | L | H | Systems and analytical | ||
| Accounts receivable | 3,075 | Completeness | L | M | M | M | Part systems, part analytical |
| Validity | VL | H | L | L | Systems and part substantive | ||
| Accuracy | VL | H | L | L | Systems and part substantive | ||
| etc | |||||||
| Note: Unless the audit approach is desribed as in-depth, the approach is assumed to be non in-depth. |
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The auditor determines the audit approach for each material account balance assertion in the manner described. However, where the auditor has reason to believe that the risk levels have not changed since the previous year and the auditor has determined that no changes have occurred that affect the relevance of this information, the auditor may adopt the audit approach used in the client's audit engagement for the previous year. Additionally, the auditor also considers any other factors that have an impact on the audit approach (apart from the risk factors referred to) before finalizing the approach for each account balance assertion.
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