1

Core Concepts

• Ethics
• Quality management
• Audit quality
• Professional skepticism
• Audit documentation
  

2

Risk Assessment

• Audit planning
• Risk assessment procedures

3

Risk Response

• Audit sampling
• External confirmations
• Journal entry testing
• Related party transactions
• Opening balances
• Going concern
• Group audits
• Accounting estimates
• Use of auditor's experts
• Evaluating the application of accounting standards

4

Reporting

• Forming an auditor's opinion
• Key audit matters

5

Beyond Audit
Engagements

• Financial reporting
• Sustainability reporting
• Management accounting & others
• Listing rules by the Stock Exchange of Hong Kong
• Regulated reporting

Ethics

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Lack of independence assessment for non-assurance services (NAS) to audit clients
• Partner rotation
• Identification and evaluation of firm's relationships with audit clients and their related entities

• HKICPA E-learning: Revised NAS and Fee-Related Provisions of the Code
• IESBA FAQ Long Association of Personnel with An Audit Client
• HKICPA Ethics Resource Centre

Quality Management

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient assessment or procedures for client and engagement acceptance or continuance
• Lack of root cause analysis or remediation plan for identified deficiencies
• Insufficient internal trainings and monitoring of staff's external trainings
• Lack of controls over personal confirmations of independence

• AFRC Late Changes in Auditor Appointment and Additional Issues
• AFRC An External Auditor's Guide to Performing Root Cause Analysis
• HKICPA Quality Management Resource Centre
• HKICPA Quality Management Manual
• HKICPA Quality Management E-learning Series

Audit Quality and Professional Skepticism

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient challenge of key assumptions adopted by management
• Insufficient challenge on the reliability and relevance of the information used by management
• Lack of evaluation and consideration of all available and/or contradictory evidence
• Insufficient challenge of the business rationale for unusual transactions and the associated risk of fraud

• AFRC Effective Planning: The Key to High-Quality Audits
• HKICPA Panel discussion webinar: Audit Quality - A culture of professional skepticism
• HKICPA E-learning: Revisions to the Code to promote the Roles and Mindset Expected of Professional Accountants
• HKICPA Alert Issue 38: Commitment to ensuring audit quality
• HKICPA Auditing and Assurance Resource Centre > Audit Quality
• ICAEW resources on Professional skepticism and Supporting audit quality ^

Audit Documentation

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient details of the purpose, extent, timing and nature of the tests and the source documents examined
• Inadequate documentation on matters considered or detailed procedures performed in reaching the conclusion
• Failure to assemble all relevant documentation or evidence in the final audit file referred to during the AFRC's inspections
  
   

• HKICPA Auditing and Assurance Resource Centre
• HKICPA Audit Practice Manual (2022 edition) (APM 2022)
• HKICPA E-learning: Application of APM 2022
• HKICPA Quality Management Manual

Audit Planning

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient time spent on audit planning

• AFRC Audit Focus: 2023 Financial Year-end Audit Reminder
• AFRC Effective Planning: The Key to High-Quality Audits
• HKICPA Auditing and Assurance Resource Centre
• HKICPA APM 2022
• HKICPA E-learning: Application of APM 2022

Risk Assessment Procedures

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient risk assessment
• Not obtaining a sufficient understanding of the entity's business and internal controls
• Not planning and designing appropriate audit procedures responsive to the assessed risk

• HKICPA Resource Centre on HKSA 315 (Revised), Identifying and Assessing the Risks of Material Misstatements
• HKICPA E-learning:
  • Implementing HKSA 315 (Revised 2019) – What you need to know
  • HKSA 315 (Revised 2019) – Key Requirements and Implications on Auditing
• CPA Canada Revised ISA 315 Resources
• ICAEW Revised ISA 315 resources and webinars ^

Audit Sampling / External Confirmations

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Failure to test the completeness of the population from which audit samples were selected
• Placing inappropriate reliance on the results of other audit procedures and reducing the extent of tests of details
• Not critically evaluating whether the confirming parties were the ones who returned the confirmations by e-mail or fax
• Failure to verify whether the respondents were authorized to respond to the confirmation requests

• HKICPA Alert Issue 48: Considerations for 2023 year-end audits includes considerations on bank confirmation requests
• HKICPA Alert Issue 28: Online audit confirmation tools
• HKICPA Auditing and Assurance Resource Centre
• HKICPA APM 2022
• HKICPA E-learning: Application of APM 2022
• ICAEW Sample sizes and caps ^
• IFAC Guide to Using ISAs on Auditing in the Audits of Small- and Medium- Sized Entities (2018) *

Journal Entry (JE) Testing

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient evaluation of the appropriateness, completeness and accuracy of consolidation adjustments and reclassifications, and whether they reflect any fraud risk factors or management bias
• Failure to make use of the understanding of the entity's financial reporting process to identify the types of JE for testing
• Failure to evaluate the completeness of the JE population subject to test
• Failure to test JE with fraudulent characteristics
• Failure to evaluate the appropriateness of applying a monetary threshold to select JE
• Insufficient documentation of the details of the selected JE and the audit work performed

• HKICPA APM 2022
• CPA Canada Implementation tools for auditors: Testing journal entries & responding to the risk of management override of controls
• ICAEW:
• Efficient journals testing ^
• Journals testing meeting ISA 240 and the role of automated software tools ^

Related Party (RP) Transactions

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient understanding and evaluation of the entity's policies and procedures for identifying RP and RP transactions
• Insufficient audit procedures to address the completeness of RP transaction disclosures.

• HKICPA APM 2022
• ACCA The audit of related parties and the application of professional scepticism

Opening Balances

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Failure to evaluate the appropriateness of consolidation adjustments from previous year
• Not obtaining sufficient appropriate audit evidence on the existence and valuation of significant assets in the opening balance
• Failure to evaluate whether opening balances contain a misstatement that could materially affect the current period, where the outgoing auditor expressed a disclaimer

• ICAEW Prior year unaudited – Audit report implications ^

Going Concern

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Failure to critically evaluate the feasibility and outcome of management's plan for future action in relation to the going concern assessment
• Failure to evaluate management's judgement on the entity's ongoing financial covenants compliance despite breach indicators during the forecast period
• Failure to critically consider what events or conditions might cast significant doubt on the entity's ability to continue as a going concern and obtain sufficient appropriate audit evidence
• Insufficient evaluation of the adequacy of the disclosures on events or conditions which may cast significant doubt on the entity's ability to continue as a going concern and management's mitigating plan
• Failure to establish an adequate basis for a disclaimer of opinion

• IAASB FAQ: Reporting Going Concern Matters in the Auditor's Report
• IAASB Staff Audit Practice Alert: Going Concern
• ICAEW Auditing Going Concern ^

Group Audits

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient involvement in the work of the component auditors by the group engagement teams
• Insufficient documentation on how the group engagement teams evaluate the work performed by the component auditors

• HKICPA Resource Centre on HKSA 600 (Revised)
• HKICPA E-learning: The revised standard on group audit engagements

Accounting Estimates

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Failure to critically challenge the basis of management's key assumptions and the probability of alternative scenarios
• Insufficient challenge on the reliability and relevance of information used by the management
• Not considering whether the discount rate reflects the asset's specific risks and time value of money

• HKICPA Auditing and Assurance Resource Centre > Auditing Accounting Estimates and Related Disclosures
• HKICPA E-learning:
• E-seminar on HKSA 540 (Revised)
• Reviewing valuations in audits
• Audit-cum-accounting training series - HKAS 36 Impairment of Assets
• HKAS 36 Impairment of Assets
• IAASB ISA 540 (Revised) illustrative examples for auditing
• Simple & Complex Accounting Estimates
• Expected Credit Loss Accounting Estimates

Use of Auditor's Expert

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Not evaluating and performing additional procedures to address the caveats made by the auditor's expert and consequently placing undue reliance on their work
• Not having an agreement with the auditor's expert on the scope of work and the specific procedures to be performed
• Not having internal firm policies or guidance on the extent of documentation of the expert's work
• Not adequately evaluating the appropriateness of the market comparables selected by the auditor's experts
• Simply checking the accuracy of input data used by the auditor's expert, without evaluating whether the data was relevant, complete and accurate

• HKICPA E-learning:
• Reviewing valuations in audits
• Audit-cum-accounting training series - HKAS 36 Impairment of Assets
• ICAEW:
• Using experts when auditing specialist areas ^
• Auditing specialist areas ^

Revenue Recognition

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Insufficient evaluation of management's accounting for the performance obligations promised in contracts
• Failure to critically evaluate management's assessment of whether the entity was acting as a principal or an agent
• Insufficient evaluation of contract terms that include variable consideration
• Insufficient evaluation of the appropriateness of management's determination as to when the control of goods or services was transferred to customers and the method used by management in measuring the progress to recognize revenue

• HKICPA Resource Centre: HKFRS 15 Revenue from Contracts with Customers
• HKICPA E-learning:
• Audit-cum-accounting training series - HKFRS 15 Revenue from Contracts with Customers
• Common application issues of HKFRS 9 Financial Instruments and HKFRS 15 Revenue from Contracts with Customers
• Common application issues of HKFRS 9, 15 and 16

Expected Credit Loss (ECL)

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Failure to test the reliability of information prepared by management for ECL assessment
• A lack of evaluation of management's assessment of changes in credit risk for a financial asset since initial recognition
• Insufficient evaluation of the appropriateness of the probability of default
• Lack of evaluation of management's rebuttal of the presumption that default would occur when a financial asset was 90 days past due and whether management's use of more lagging default criterion is reasonable and supportable
• Failure to challenge management on the correlation between selected macroeconomic factors such as GDP and the entity's historical default rate in evaluating the appropriateness of a forward-looking adjustment
  
   

• HKICPA Resource Centre: HKFRS 9 Financial Instruments
• HKICPA E-learning:
• Audit-cum-accounting training series - Expected Credit Losses under HKFRS 9 Financial Instruments
• Accounting cum auditing essence: a fresh look at impairment of trade and other receivables

Forming an Auditor's Opinion / Key Audit Matters

⚠ Examples of AFRC Inspection Findings

💻 Resources and Support

• Failure to establish an adequate basis for a disclaimer of opinion
• Not performing all the audit procedures described in the auditor's report to address Key Audit Matters (KAMs)
• Not sufficiently documenting the determination of KAMs, including the rationale for matters requiring significant auditor attention and which of those matters are of most significance in the audit and therefore are KAMs
• Insufficient description of how that KAM was addressed

• HKICPA Alert Issue 20: Auditor';s report signing arrangements
• HKICPA E-learning: How will the new ethical standard – NOCLAR affect you?
• HKICPA Auditing and Assurance Resource Centre > New and Revised Auditor Reporting
• HKICPA Example Reports for Auditors and Companies
• HKICPA Publications:
• Second Year Review of Revised Auditor's Report (2018)
• First Year Review of Revised Auditor's Report (2017)
• CPA Canada New and revised auditor reporting: External resources
• ICAEW Understanding audit reports ^
• IFAC Auditor Reporting Standards Implementation: Key Audit Matters

Financial Reporting

💻 Resources and Support

• HKICPA Resource Centre
• HKICPA E-learnings on Financial Reporting Topics
• HKICPA online courses in collaboration with AICPA/CIMA:
  
  • IFRS related e-learnings

Sustainability Reporting

💻 Resources and Support

• HKICPA ESG Information Center
• HKICPA ESG-related e-learnings
• HKICPA Technical Resources on Sustainability Reporting, Assurance and Ethics

Management Accounting & Others

💻 Resources and Support

• HKICPA E-learning on Management Accounting and Reporting
• HKICPA Highlights of Resources by Competency:
• Digitalization
• Softskill
• Valuation
• HKICPA Practice Management series for SMPs:
• Retaining Talents in Hong Kong and Hiring Trends 2022 – 2023
• Putting the "Success" in Succession Planning (panel discussion)

Listing Rules by the Stock Exchange of Hong Kong

💻 Resources and Support

• HKICPA E-learning on Listing Rules issued by the Stock Exchange of Hong Kong

Regulated Reporting

💻 Resources and Support

• HKICPA Alerts:
• Issue 46: Reminder for auditor's reporting on the Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules
• Issue 36: Solicitors accounts reporting pitfalls
• Issue 35: Compliance work for regulated entities
• HKICPA Auditing and Assurance Resource Centre > Regulated and Other Reporting