Assessing Risks of Material Misstatement (1)

Question 1

What happens once the auditor obtains an understanding of the entity and its environment?

Answer 1

They shall assess the risks of material misstatement in financial statements and identify significant risks

Question 2

Significant risk

Answer 2

The assessment of inherent risk is close to the upper end of the spectrum of inherent risk due to degree which inherent risk factors affect combination of likelihood of misstatement occurring

Question 3

What does the auditor begin simply by identifying risks?

Answer 3

Will need to consider how severe each risk is in terms of the “spectrum of inherent risk”

Question 4

Which transactions are less likely to give rise to significant risk?

Answer 4

Routine, non-complex transactions as client staff are more likely to be used to process these transactions

Question 5

What are routine non-complex transactions likely to be?

Answer 5

Subject to robust internal controls

Question 6

Which transactions are more likely to pose a significant risk?

Answer 6

Unusual and complex transactions and matters where judgment is required

Question 7

What are the risk factors (Co)

Answer 7

Complexity

Question 8

What are the risk factors (S)

Answer 8

Subjectivity

Question 9

What are the risk factors (Ch)

Answer 9

Change

Question 10

What are the risk factors (U)

Answer 10

Uncertainty

Question 11

What are the risk factors (M)

Answer 11

Management bias or fraud risk