You are the audit senior and you have just completed the audit of Fine Furs Ltd, a maker of artificial fur clothing. In performing the audit, you made an assessment that the company has a low level of inherent risk and a low level of control risk. As a result, you amended the audit plan to allow for a higher level of detection risk, thus resulting in less substantive tests. You also amended the audit plan to perform more testing on internal controls because of the lower level of control risk for the audit than was originally planned.

Satisfied that you completed the required amount of work to satisfy the audit risk model, you handed the audit file to the manager for review. The audit manager, after completing the review, had a large number of queries and asked you into her office for a ‘chat’.

‘Look, Iam not particularly happy with the work you have performed on this audit. The problem stems from your reassessments of the risks associated with the audit and subsequent changing of the amount of substantive testing. In the view of our firm there are some account balances that need to be tested by using substantive procedures or there are problems in validating all required assertions, not to mention the potential litigation problems.

We would like you to go back to the entity to perform more work.’

Required

(a) Discuss the effect of the change in detection risk on the nature, timing and extent of substantive procedures.

(b) What do you think about the comment by the audit manager? Give five examples of audit tests that you believe she might be referring to and why.