Refer to Auditing in Action 10-2.

Data from in Auditing Action 10-2

The following is an excerpt from KPMG’s 2014 Audit Plan, which it presented to the audit committee of the Regional Municipality of York. Identification of Significant Risks As part of our audit planning, we identify the significant financial reporting risks that, by their nature, require special audit consideration. By focusing on these risks, we establish an overall audit strategy and effectively target our audit procedures. KPMG identified 12 significant reporting risks. In the table below, KPMG’s audit approach for two groups of significant accounts that both have a low risk of material misstatement prior to the consideration of internal controls (or inherent risk) are presented:

REQUIRED
a. Based on what you have learned about audit approach in this chapter, why would KPMG apply a different approach to two accounts that have the same risk of material misstatement?
b. Below are the audit procedures that KPMG listed for each account. Explain the nature of procedure (its purpose and the type of procedure) and which relevant assertion is being tested.

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Accounts Development Charges,* Revenue and Expenses Risk of Material Misstatement Prior to Consideration of Internal Controls Low Accounts Payable, Accrued Low Liabilities, and Expenses Summary of Planned Audit Approach Substantive approach • Perform substantive tests on development charge collections by vouching to cash receipts and ensure proper classification. Perform interest reasonability test on interest earned relating to development charges. • • Vouch development charge expenditures to supporting docu- ments and ensure they relate to appropriate programs. • Perform analysis on certain over-budgeted projects. Combined (for payroll) and substantive approach (for non-payroll) Evaluate the design and implementation of controls over payroll expenses. • Test the operating effectiveness of the controls. • Perform substantive test of details of nonpayroll expenses. • Search for unrecorded liabilities. ● Examine accrued liabilities for accuracy and completeness.